Haven't seen this before. Lack of RAM may be a cause - with 1 GB of RAM only you can't run on High settings. The reason you will always see free RAM is because Windows is writing the rest to disk into the paging file.
I would be surprised if Default UI really behaves differently for you, since the mechanics of dragging and dropping are handled by the game, not the XML files that make up the UI.
Maybe they can help you in the official SOE tech support forums, they may already have seen this.
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