Original post: http://getshopped.org/forums/topic.php?id=10542#post-40321

Just to flesh out @reikob’s solution, turn off settings>presentation on “drag and drop” and reset it to sort products by time uploaded. The ability to edit products returns.

With the selection to sort products by time uploaded, the drag and drop sort capability for both editing and displaying products remains in force. Be sure not to reorder products in the ‘view all categories’ mode – this will only apply to the unusable ‘category = 0’, which is actually nonexistent. Rather, select the category filter in which you wish the reorder to take place, and the drag and drop will work flawlessly.

Thanks @reikob!
Also, if you want to clean up the table which has in it all your previous (incorrect) attempts at ordering products, go to your phpMyAdmin. Select the wp_wpsc_product_order table, and delete all rows which have a category_id = 0.

Update from Designparc: I have found that the above fix causes duplicate products in some cases (when using the productspage shortcode). This is solved by removing any duplicate product_id rows in the wp_wpsc_product_order table in phpMyAdmin.

Running:
WordPress 3.0.1
WP e-Commerce 3.7.6.7