The bug is in the snippet I posted; the line that checks the the point to see if it is within the dragRect was causing the drag logic to execute when the point was within the drag rect, and the intention was to execute it when the point is outside that rectangle (see below). Terribly sorry for the inconvenience.

private void listView_MouseMove(object sender, MouseEventArgs e)
{
    UltraListView listView = sender as UltraListView;

    //  If the mouse has moved outside the area in which it was pressed,
    //  start a drag operation
    if ( this.lastMouseDown.HasValue )
    {
        Size dragSize = SystemInformation.DragSize;
        Rectangle dragRect = new Rectangle( this.lastMouseDown.Value, dragSize );
        dragRect.X -= dragSize.Width / 2;
        dragRect.Y -= dragSize.Height / 2;

        //  BUG: We want to do this when the dragRect does NOT contain the point.
        //if (dragRect.Contains(e.Location) )
        if (dragRect.Contains(e.Location) == false )
        {
            UltraListViewItem itemAtPoint = listView.ItemFromPoint( e.Location );

            if ( itemAtPoint != null )
            {
                this.lastMouseDown = null;
                this.dragItem = itemAtPoint;
                listView.DoDragDrop( this.dragItem, DragDropEffects.Move );
            }
        }
    }
}