Index: Core/Common/src/Core.Common.Controls.TreeView/DragDropHandler.cs
===================================================================
diff -u -red0efdcfe1c041f58f65ac59a18c42bd1df9f1ff -r7b47bd7322094ce1af65e2d69ccc154d58d297e6
--- Core/Common/src/Core.Common.Controls.TreeView/DragDropHandler.cs	(.../DragDropHandler.cs)	(revision ed0efdcfe1c041f58f65ac59a18c42bd1df9f1ff)
+++ Core/Common/src/Core.Common.Controls.TreeView/DragDropHandler.cs	(.../DragDropHandler.cs)	(revision 7b47bd7322094ce1af65e2d69ccc154d58d297e6)
@@ -62,7 +62,7 @@
 
             var point = treeView.PointToClient(new Point(e.X, e.Y));
             TreeNode nodeOver = treeView.GetNodeAt(point);
-            var draggedNode = (TreeNode) e.Data.GetData(typeof(TreeNode));
+            var draggedNode = GetDraggedNodeData(e);
 
             if (nodeOver == null)
             {
@@ -107,18 +107,18 @@
 
             var point = treeView.PointToClient(lastDragOverPoint);
             TreeNode nodeOver = treeView.GetNodeAt(point);
-            var draggedNode = (TreeNode) e.Data.GetData(typeof(TreeNode));
+            var draggedNode = GetDraggedNodeData(e);
 
-            if (nodeOver == null || draggedNode == null || nodeOver == draggedNode || IsDropTargetChildOfDraggedNode(nodeOver, draggedNode))
+            if (draggedNode == null || nodeOver == null  || nodeOver == draggedNode || IsDropTargetChildOfDraggedNode(nodeOver, draggedNode))
             {
                 RemovePlaceHolder(treeView);
-
+                e.Effect = DragDropEffects.None;
                 return;
             }
 
             ScrollIntoView(point, nodeOver, treeView);
 
-            PlaceholderLocation placeholderLocation = GetPlaceHoldersLocation(treeView, draggedNode, nodeOver, e, getTreeNodeInfoForData);
+            PlaceholderLocation placeholderLocation = GetPlaceHoldersLocation(treeView, draggedNode, nodeOver, getTreeNodeInfoForData);
 
             if (nodeDropTarget == null)
             {
@@ -132,6 +132,9 @@
 
             if (placeholderLocation == PlaceholderLocation.None)
             {
+                RemovePlaceHolder(treeView);
+                e.Effect = DragDropEffects.None;
+
                 return;
             }
 
@@ -147,6 +150,18 @@
             }
         }
 
+        private static TreeNode GetDraggedNodeData(DragEventArgs e)
+        {
+            try
+            {
+                return (TreeNode) e.Data.GetData(typeof(TreeNode));
+            }
+            catch (InvalidCastException)
+            {
+                return null;
+            }
+        }
+
         /// <summary>
         /// This method handles the <see cref="TreeView.ItemDrag"/> event for a <see cref="TreeViewControl"/>.
         /// </summary>
@@ -265,7 +280,7 @@
             }
         }
 
-        private PlaceholderLocation GetPlaceHoldersLocation(FormsTreeView treeView, TreeNode nodeDragging, TreeNode nodeOver, DragEventArgs e, Func<object, TreeNodeInfo> getTreeNodeInfoForData)
+        private PlaceholderLocation GetPlaceHoldersLocation(FormsTreeView treeView, TreeNode nodeDragging, TreeNode nodeOver, Func<object, TreeNodeInfo> getTreeNodeInfoForData)
         {
             var placeholderLocation = PlaceholderLocation.None;
             int offsetY = treeView.PointToClient(Cursor.Position).Y - nodeOver.Bounds.Top;
@@ -275,7 +290,7 @@
                 if (nodeOver.Parent != null)
                 {
                     TreeNodeInfo treeNodeInfo = getTreeNodeInfoForData(nodeOver.Parent.Tag);
-                    if (treeNodeInfo.CanInsert != null && treeNodeInfo.CanInsert(nodeDragging.Tag, nodeOver.Tag))
+                    if (treeNodeInfo.CanInsert != null && treeNodeInfo.CanInsert(nodeDragging.Tag, nodeOver.Parent.Tag))
                     {
                         nodeDropTarget = nodeOver.Parent;
                         dropAtLocation = nodeOver.Parent == null ? 0 : nodeOver.Parent.Nodes.IndexOf(nodeOver);
@@ -300,7 +315,7 @@
                      && nodeDragging.PrevNode != nodeOver)
             {
                 TreeNodeInfo treeNodeInfo = getTreeNodeInfoForData(nodeOver.Parent.Tag);
-                if (treeNodeInfo.CanInsert != null && treeNodeInfo.CanInsert(nodeDragging.Tag, nodeOver.Tag))
+                if (treeNodeInfo.CanInsert != null && treeNodeInfo.CanInsert(nodeDragging.Tag, nodeOver.Parent.Tag))
                 {
                     nodeDropTarget = nodeOver.Parent;
                     dropAtLocation = nodeOver.Parent != null
@@ -324,13 +339,6 @@
                 placeholderLocation = PlaceholderLocation.Middle;
             }
 
-            if (placeholderLocation == PlaceholderLocation.None
-                || (placeholderLocation == PlaceholderLocation.Middle && nodeDropTarget == nodeDragging.Parent))
-            {
-                RemovePlaceHolder(treeView);
-                e.Effect = DragDropEffects.None;
-            }
-
             return placeholderLocation;
         }
 
Index: Core/Common/test/Core.Common.Controls.TreeView.Test/DragDropHandlerTest.cs
===================================================================
diff -u -rc8813d252befec1494a76e44e04b64985b34d7fc -r7b47bd7322094ce1af65e2d69ccc154d58d297e6
--- Core/Common/test/Core.Common.Controls.TreeView.Test/DragDropHandlerTest.cs	(.../DragDropHandlerTest.cs)	(revision c8813d252befec1494a76e44e04b64985b34d7fc)
+++ Core/Common/test/Core.Common.Controls.TreeView.Test/DragDropHandlerTest.cs	(.../DragDropHandlerTest.cs)	(revision 7b47bd7322094ce1af65e2d69ccc154d58d297e6)
@@ -1,6 +1,9 @@
 using System;
+using System.Drawing;
+using System.IO;
 using System.Windows.Forms;
 using NUnit.Framework;
+using Rhino.Mocks;
 
 namespace Core.Common.Controls.TreeView.Test
 {
@@ -47,5 +50,113 @@
             // Assert
             Assert.IsNull(treeView.SelectedNode);
         }
+
+        [Test]
+        [TestCase(false, DragDropEffects.None)]
+        [TestCase(true, DragDropEffects.Move)]
+        public void HandleDragOver_TreeNodeDraggedToDroppableNode_DragDropEffectSetForEvent(bool canDrop, DragDropEffects dropEffect)
+        {
+            // Setup
+            int targetHeight = 30;
+
+            var mocks = new MockRepository();
+            var data = mocks.Stub<IDataObject>();
+            var treeView = mocks.Stub<System.Windows.Forms.TreeView>();
+            var treeNode = mocks.Stub<TreeNode>();
+            var graphicsMock = mocks.Stub<Graphics>();
+            treeNode.Stub(tn => tn.Parent).Return(null);
+            treeNode.Stub(tn => tn.Bounds).Return(new Rectangle(0, 0, 50, targetHeight));
+
+            var draggingNode = new TreeNode("DraggingNode");
+            var nodePoint = new Point(0, 10);
+
+            data.Expect(d => d.GetData(d.GetType())).IgnoreArguments().Return(draggingNode);
+            treeView.Stub(tv => tv.PointToClient(Point.Empty)).IgnoreArguments().Return(nodePoint);
+            treeView.Stub(tv => tv.GetNodeAt(nodePoint)).Return(treeNode);
+            treeView.Stub(tv => tv.CreateGraphics()).Return(graphicsMock);
+            mocks.ReplayAll();
+
+            Func<object, TreeNodeInfo> action = o => new TreeNodeInfo
+            {
+                CanDrop = (oo,op) => canDrop
+            };
+            DragDropHandler ddh = new DragDropHandler();
+            DragEventArgs dragEvent = new DragEventArgs(data, 0, 10, 15, DragDropEffects.All, DragDropEffects.None);
+
+            // Call
+            ddh.HandleDragOver(treeView, dragEvent, action);
+            
+            // Assert
+            Assert.AreEqual(dragEvent.Effect, dropEffect);
+            mocks.VerifyAll();
+        }
+
+        [Test]
+        public void HandleDragOver_NoTreeNodeDraggedToDroppableNode_DragDropEffectNoneSetForEvent()
+        {
+            // Setup
+            int targetHeight = 30;
+
+            var mocks = new MockRepository();
+            var data = mocks.Stub<IDataObject>();
+            var treeView = mocks.Stub<System.Windows.Forms.TreeView>();
+            var treeNode = mocks.Stub<TreeNode>();
+            var graphicsMock = mocks.Stub<Graphics>();
+            treeNode.Stub(tn => tn.Parent).Return(null);
+            treeNode.Stub(tn => tn.Bounds).Return(new Rectangle(0, 0, 50, targetHeight));
+
+            var nodePoint = new Point(0, 10);
+
+            data.Expect(d => d.GetData(d.GetType())).IgnoreArguments().Return(new object());
+            treeView.Stub(tv => tv.PointToClient(Point.Empty)).IgnoreArguments().Return(nodePoint);
+            treeView.Stub(tv => tv.GetNodeAt(nodePoint)).Return(treeNode);
+            treeView.Stub(tv => tv.CreateGraphics()).Return(graphicsMock);
+            mocks.ReplayAll();
+
+            Func<object, TreeNodeInfo> action = o => new TreeNodeInfo();
+            DragDropHandler ddh = new DragDropHandler();
+            DragEventArgs dragEvent = new DragEventArgs(data, 0, 10, 15, DragDropEffects.All, DragDropEffects.None);
+
+            // Call
+            ddh.HandleDragOver(treeView, dragEvent, action);
+            
+            // Assert
+            Assert.AreEqual(dragEvent.Effect, DragDropEffects.None);
+            mocks.VerifyAll();
+        }
+
+        [Test]
+        public void HandleDragOver_DataDraggedThrowsInvalidCastException_DragDropEffectNoneSetForEvent()
+        {
+            // Setup
+            int targetHeight = 30;
+
+            var mocks = new MockRepository();
+            var data = mocks.Stub<IDataObject>();
+            var treeView = mocks.Stub<System.Windows.Forms.TreeView>();
+            var treeNode = mocks.Stub<TreeNode>();
+            var graphicsMock = mocks.Stub<Graphics>();
+            treeNode.Stub(tn => tn.Parent).Return(null);
+            treeNode.Stub(tn => tn.Bounds).Return(new Rectangle(0, 0, 50, targetHeight));
+
+            var nodePoint = new Point(0, 10);
+
+            data.Expect(d => d.GetData(d.GetType())).IgnoreArguments().Throw(new InvalidCastException());
+            treeView.Stub(tv => tv.PointToClient(Point.Empty)).IgnoreArguments().Return(nodePoint);
+            treeView.Stub(tv => tv.GetNodeAt(nodePoint)).Return(treeNode);
+            treeView.Stub(tv => tv.CreateGraphics()).Return(graphicsMock);
+            mocks.ReplayAll();
+
+            Func<object, TreeNodeInfo> action = o => new TreeNodeInfo();
+            DragDropHandler ddh = new DragDropHandler();
+            DragEventArgs dragEvent = new DragEventArgs(data, 0, 10, 15, DragDropEffects.All, DragDropEffects.None);
+
+            // Call
+            ddh.HandleDragOver(treeView, dragEvent, action);
+            
+            // Assert
+            Assert.AreEqual(dragEvent.Effect, DragDropEffects.None);
+            mocks.VerifyAll();
+        }
     }
 }
\ No newline at end of file