It seems to me that a playlist should be made up of songs that are ON your computer.

But I inserted a CD, then loaded Media Player Classic... (a non-Microsoft program) and opened a directory using its menu and told it to play the 4 middle tracks from the CD, and it is now doing this. (I had never tried this before.)

So...what are you attempting to drag these files from? a file manager?...and why in particular do you resort to dragging instead of just opening a menu?