I only had time for a quick & dirty example but this demonstrates the basic approach. You can use the 'WinListView DragDrop' sample for direction on refining this.

this.listView.AllowDrop = true;
this.listView.MouseDown += new MouseEventHandler(listView_MouseDown);
this.listView.MouseMove += new MouseEventHandler(listView_MouseMove);
this.listView.DragOver += new DragEventHandler(listView_DragOver);
this.listView.DragDrop += new DragEventHandler(listView_DragDrop);
this.listView.QueryContinueDrag += new QueryContinueDragEventHandler(listView_QueryContinueDrag);

private Nullable<Point> lastMouseDown = null;
private UltraListViewItem dragItem = null;
private UltraListViewItem dropItem = null;

private void listView_MouseDown(object sender, MouseEventArgs e)
{
    //  Record the cursor location
    if ( e.Button == MouseButtons.Left )
        this.lastMouseDown = e.Location;
    else
        this.lastMouseDown = null;
}

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;

        if (dragRect.Contains(e.Location) )
        {
            UltraListViewItem itemAtPoint = listView.ItemFromPoint( e.Location );

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

private void listView_QueryContinueDrag(object sender, QueryContinueDragEventArgs e)
{
    UltraListView listView = sender as UltraListView;

    //  Cancel the drag operation if the escape key was pressed
    if ( e.EscapePressed )
    {
       this.OnDragEnd( listView, true );
       e.Action = DragAction.Cancel;
    }
}

private void listView_DragOver(object sender, DragEventArgs e)
{           
    UltraListView listView = sender as UltraListView;
    Point clientPos = listView.PointToClient( new Point(e.X, e.Y) );

    if ( this.dragItem != null )
    {
        this.dropItem = listView.ItemFromPoint( clientPos );

        e.Effect = this.dropItem != null && this.dropItem != this.dragItem ? DragDropEffects.Move : DragDropEffects.None;
    }

    //  TODO: This could be improved with a hover timer

    //  If the cursor is within {dragScrollAreaHeight} pixels
    //  of the top or bottom edges of the control, scroll
    int dragScrollAreaHeight = 8;

    Rectangle displayRect = listView.DisplayRectangle;
    Rectangle topScrollArea = displayRect;
    topScrollArea.Height = (dragScrollAreaHeight * 2);

    Rectangle bottomScrollArea = displayRect;
    bottomScrollArea.Y = bottomScrollArea.Bottom - dragScrollAreaHeight;
    bottomScrollArea.Height = dragScrollAreaHeight;

    ISelectionManager selectionManager = listView as ISelectionManager;
    if ( topScrollArea.Contains(clientPos) || bottomScrollArea.Contains(clientPos) )
        selectionManager.DoDragScrollVertical(0);
}

private void listView_DragDrop(object sender, DragEventArgs e)
{
    UltraListView listView = sender as UltraListView;
    this.OnDragEnd( listView, false );
}

private void OnDragEnd( UltraListView listView, bool canceled )
{
    if ( canceled == false && this.dragItem != null && this.dropItem != null )
    {
        listView.BeginUpdate();

        listView.Items.Remove( this.dragItem );
        int index = this.dropItem.Index + 1;
        listView.Items.Insert( index, this.dragItem );

        listView.EndUpdate();
    }

    this.dragItem = this.dropItem = null;
    this.lastMouseDown = null;
}