(Need oaf-slay in a virtual terminal to escape from this problem.)

To reproduce:

  Open a Nautilus window,
  Choose Edit menu,
  Choose Backgrounds and Emblems menu item,
  Select the Emblems set (perhaps Backgrounds hangs too),

  Now, with the mouse over an emblem in that window,
  "accidentally" roll the wheel mouse one click.

  The cursor should look like it's thinking about dragging
  that emblem to copy it, but the emblem flutters back,
  and GNOME gets stuck in that dragging mode.

  No keypress, mouse button, mouse chord or other action
  seems to free Nautilus from hogging the input.

To stop the problem, I had to use oaf-slay in a virtual terminal.

Problem occurs in Red Hat's 1.0.4 released with RHL 7.2, as well
as independently verified in 1.0.5.