This includes Scratches added to Favorites... I added it there so I don't have to keep scrolling up and down through my Project pane's normal working files just to access these files; I simply click Favorites to open up the pane to see Scratches then close it when I'm done with it to get back to my project files.
If I try to drag a file from one folder under a Favorites location to another folder under that same Favorites location, the mouse cursor shows a cancel symbol and won't drop the file. I can drag and drop among folders of that top-level folder in the Project pane.
I don't know why a favorite location would or should not let me move files around in its sub-folders.