Well, now you got me to experiment, and I found some odd things. I don't have network-share to try, and using XP and Vista, so I don't know if Network and/or Win98 make a difference.
I assume you are not using Tree view pane (maybe you should try that, it can eliminate a lot of "pain", bad pun,

)
so say I have a folder structure like
C:\
+First Level Subfolder
__doc1.doc
__doc2.doc
__Second Level Subfolder
........doc3.doc
........doc4.doc
in the actual File List Pane, showing
[].. (that's supposed to be the double-dot folder represents
First Level )
+ Second Level Subfolder
doc3.doc
doc4.doc
Now I want to put doc5 into the Second Level.
Just dragging to the desired folder icon until it highlights always works for me (but in Vista, the mouse snags on the first folder it hits, and I can't drag vertically, have to drag horizontally to make it let go so I can go to the sub-folder I really want.)
Now, if I double-click Second Level folder icon so that its contents display in the pane ---
You are right, drag & drop file to the double-dot folder will put doc5 into the First Level.
But, using CTRL+C or right-click context menu Copy,
click on double-dot, CTRL+V or context menu Paste will put it into Second Level, which is where I want it.
(I speculate when using these particular copy/paste actions, FC is treating the double-dot as a blank spot in the folder)
As FYI,
Drag & Drop to either of the Scroll Bars on the Second Level pane WILL put it into the Second Level folder also. So you could try that if the pane is full of file names and can't find an empty spot to drop on. Or, in Details View, drag to any column heading.
Thanks for asking the question, I learned something
I hope that one of these options might work for you.