I have got a fully working drag drop system in place that is working perfectly in firefox (and all other browsers aside from internet explorer 8).

This is a screen shot of the system.
Originally I had a system that allowed nested drop targets and targets were configured by javascript parsing the class string of apropriate elements. (you can see each colored box has some params). This worked by:
1) getting javascript to pre-calculate the depth (in the DOM) of each drop target and then
2) during drag hover callback over/out events setting a hover state flag for the particular drop target
3) during hover callback find the hover target that has state TRUE and the larger depth number (lower in the DOM)
4) getting drag drop configurations associated with that "best drop target"
As I said this was all working in firefox and seemed to be fully working in ie8 until there were was weirdness.
On ie8 it seems that setting a drop target to somethign that is covered by other dom elements makes the hover/drop fail. The drop/hover will either not work (it doesn't know that i am hover/dropping over a drop target) or the array of files is empty in the drop callback.
Since then I opted (not out of choice) to go for the static box (you can see it top right of the screenshot). This is not an ideal situation as my aim was to have a "drop files into folder" type approach. But in internet explorer this drop target doesn't work either?????
The hover event never happens and the file array is empty. Are there any guidlines as to what type of element can be a drop target?
I am running windows 7 64bit but ie8 32bit.
Please help