I misunderstood your original question.
I did try the drag-n-drop and the options it gave me were:
Insert Here
Open
Create Xref
Create Hyperlink
Cancel
I clicked the insert here option and it allowed me to insert the object as if it were a block in my drawing (allowing all the user input like ortho on/off, osnap on/off, etc...)
I am running 2005, so the older versions my have a bug.