So when you say Explorer pane WITHIN Vegas do you mean:

PROJECT > IMPORT MEDIA

Then when the explorer browsing window appears try to drag and drop from there?

If so no that doesn't work either... here's the video I tried on what I think your suggestion is:

No.

VIEW->EXPLORER

It should already be a visible tab in the left pane unless you have turned it off.
Vegas has a built-in Explorer.

In any case, media that is not compatible with Vegas will not allow you to drag and drop from any window to the timeline.

Yoshen, in the Project Media pane there are tabs at the bottom, the next tab is Explorer. I almost always add video to the timeline by using the Explorer tab and dragging down from there.

It's strange though that your m2ts files can't be added via Windows Explorer drag. Could it be a Win7 user/permission issue where VMS is Run As a different user?

Brilliant! That worked, but one problem… you can’t see thumbnails.

This is a problem when you work with a very large amount of consecutively named files. (like I do) there’s no way to determine what’s what quickly, which slows down productivity… especially if your swapping between different folders for all kinds of media that’s just named “2008026174820.m2ts” LoL

Check the video below to see:

Well its not just .m2ts, its jpg's sound files and other's that used to drag and drop over just fine! I'm using a sony HD cam and a Canon 7D... all the media from both of these devices used to drag and drop over just fine :(

The very top right icon in the Explorer view allows you to change to thumbnails. You can also undock the Explorer pane (or any other pane) by clicking on the 5ish vertical dots at the top left of the pane and dragging to your right monitor and size as needed.

I'll go back to my question of it being a Win7 user/permission issue. Are you logged in as a user but VMS is being run as Administrator?

I found this in another forum I frequent for Photoshop Elements:

http://www.elementsvillage.com/forums/showpost.php?p=530289&postcount=30

It's the exact problem you describe.

Undocking works great! However I can't seem to get the explorer pane to view thumbnails even using that top right icon "view".

I tried scrolling through all the options and none of them gave me a thumbnail view. I tried using all the options from the drop down box for the view icon as well :(

Sorry, my bad. You're right, VMS doesn't have a thumbnail view in the Explorer tab. A major deficiency if you ask me.

Our posts must be crossing, running VMS as Administrator??

MSmart you were 100% right! Once the program was set to not run as an admin the dragging and dropping worked great! Thanks so much for you help! and thx to you too musicvid!