The folder drag and drop should function as normal. I've tested it on our hosted as well as our test environments and was able to sort folders. Is there a particular sequence you're doing?  For example are you dragging folders into other folders or out from within to inline.

This isn't completely related but the Groups are also sortable now, but there is a known bug there where if you drag a group and hold it for too long such that the group expands it will look like it's dropped n the group rather than below. However if you refresh, this will look normal.