Thanks for the “UIPI” info - had no idea this security measure was in place.
So now understanding this I tried running VMWare WS elevated and I was able to drag content from another elevated application – but not from the Desktop/explorer.
So this confirms that VMWare WS D&D feature works exactly as expected when it’s elevated.
Still fails though when dragging from the guest to host when non-elevated. Although the mouse cursor actually stops moving at the guest window edge until I release the mouse. When other applications are restricted by UIPI it seems that the mouse is unaffected and the normal “can drop here” cursors are displayed by the application but the operation just silently fails.