The problem may can be caused by reinstalling Windows without uninstalling IE4 first. If that is what you did, see this KB article:

support.microsoft.com/?kbid=174549

Many have fixed this problem by applying the OLE update from MS. If you try the OLE update, when you install the update, it will tell you that it is replacing files that are newer and it will recommend that you keep the newer files. Answer no, so that it will replace the newer files. If you want to be cautious, backup the newer files first. The files contained in the OLE update are:

COMPOBJ.DLL
OLE32.DLL
OLETHK32.DLL

The OLE update can be obtained from MS at:

http://www.microsoft.com/windows95/downloads/contents/wurecommended/s_wuservicepacks/w95ole32update/default.asp

You might also try extracting the OLE automation files from your 95 CD and placing then in the windows\system directory.

extract /a /e /l c:\windows\system d:\win95\win95_02.cab ole*.dll
extract /a /e /l c:\windows\system d:\win95\win95_02.cab compobj.dll

Where d:\win95 is the path to your Windows 95 install files. When prompted, tell it to overwrite existing files. If you get an error about the file being in use, extract them to a temp directory instead, reboot to DOS only and copy them to \windows\system at the full DOS prompt.

For Windows 98 users, create a reg file out of the following and merge it into your registry:

REGEDIT4

;Fixes no Drag-n-Drop problem.

[HKEY_CLASSES_ROOT\Interface\{0000010e-0000-0000-C000-000000000046}]
@="IDataObject"

[HKEY_CLASSES_ROOT\Interface\{0000010e-0000-0000-C000-000000000046}\NumMethods]
@="12"

[HKEY_CLASSES_ROOT\Interface\{0000010e-0000-0000-C000-000000000046}\ProxyStubClsid32]
@="{00000320-0000-0000-C000-000000000046}"

[HKEY_CLASSES_ROOT\CLSID\{00000320-0000-0000-C000-000000000046}]
@="oleprx32_PSFactory"

[HKEY_CLASSES_ROOT\CLSID\{00000320-0000-0000-C000-000000000046}\InprocServer32]
@="ole32.dll"