I found this answer elsewhere in the communities. Works fine.
It is possible to place files in the Sidebar under Lion, but you can't just drag-drop them there like you used to be able to. To place a file in the Sidebar:
1. In a Finder window, navigate to the file you wish to place in the Sidebar and select it.
2. From Finder menubar select Finder > File > Add to Sidebar, or press Command-T. The file will be placed in the Sidebar, where you can click-drag it up and down to locate it as you wish.
Thank Richard, who posted this.