Drag and drop does not work until the host is restarted.
When you install Virtual PC on a new computer the ability to drag and drop files from the virtual machine to the host operating system does not work until you restart the host operating system. Technically, you do not need to restart the host operating system for this to work. All you need to do is stop Windows Explorer and restart it.
The reason for this is that Virtual PC installs a shell extension to enable drag and drop support, and this is not initialized until Explorer is restarted. Rather than mandatorily requiring a host reboot we decided to leave this feature disabled until the user decides to reboot the system.
PS. We did try just restarting Windows Explorer at the end of Virtual PC installation, but this caused problems with a number of other applications.