Make sure you have the option checked that says "Manually manage music and videos" or you won't be able to drag and drop.
I would suggest using
iPhone 3G Video Converter. I've been using Videora products for 3 years now without any issues whatsoever. Before the iPhone, I was using the program to convert videos for the PS3.
Check out my other post about the program here:
http://www.everythingicafe.com/forum...ter-47554.html