diff --git a/src/servers/app/Desktop.cpp b/src/servers/app/Desktop.cpp
index d2fdc8bf8e..e17c544d91 100644
--- a/src/servers/app/Desktop.cpp
+++ b/src/servers/app/Desktop.cpp
@@ -597,11 +597,7 @@ Desktop::SetCursor(ServerCursor* newCursor)
 	if (newCursor == oldCursor)
 		return;
 
-	newCursor->Acquire();
 	HWInterface()->SetCursor(newCursor);
-
-	if (oldCursor != NULL)
-		oldCursor->Release();
 }
 
 
diff --git a/src/servers/app/EventDispatcher.cpp b/src/servers/app/EventDispatcher.cpp
index 5087504046..e3192e52b3 100644
--- a/src/servers/app/EventDispatcher.cpp
+++ b/src/servers/app/EventDispatcher.cpp
@@ -8,9 +8,12 @@
 
 
 #include "EventDispatcher.h"
+
+#include "BitmapManager.h"
 #include "EventStream.h"
 #include "HWInterface.h"
 #include "InputManager.h"
+#include "ServerBitmap.h"
 
 #include <TokenSpace.h>
 
@@ -517,9 +520,23 @@ EventDispatcher::ViewUnderMouse(EventTarget& target)
 
 
 void
-EventDispatcher::SetDragMessage(BMessage& message)
+EventDispatcher::SetDragMessage(BMessage& message,
+								ServerBitmap* bitmap,
+								const BPoint& offsetFromCursor)
 {
-	printf("EventDispatcher::SetDragMessage()\n");
+//	printf("EventDispatcher::SetDragMessage()\n");
+
+	if (fDragBitmap != bitmap) {
+		if (fDragBitmap)
+			gBitmapManager->DeleteBitmap(fDragBitmap);
+
+		fDragBitmap = bitmap;
+	
+		if (fDragBitmap)
+			fDragBitmap->Acquire();
+	}
+
+	fHWInterface->SetDragBitmap(bitmap, offsetFromCursor);
 
 	BAutolock _(this);
 
@@ -624,7 +641,7 @@ EventDispatcher::_UnsetFeedFocus(BMessage* message)
 void
 EventDispatcher::_DeliverDragMessage()
 {
-	printf("EventDispatcher::_DeliverDragMessage()\n");
+//	printf("EventDispatcher::_DeliverDragMessage()\n");
 
 	if (fDraggingMessage && fPreviousMouseTarget) {
 		fDragMessage.RemoveName("_original_what");
@@ -632,7 +649,7 @@ EventDispatcher::_DeliverDragMessage()
 		fDragMessage.what = _MESSAGE_DROPPED_;
 
 //		fDragMessage.AddBool("dropped", true);
-printf("  sending message to previous mouse target\n");
+//printf("  sending message to previous mouse target\n");
 		_SendMessage(fPreviousMouseTarget->Messenger(), 
 			&fDragMessage, 100.0);
 	}
@@ -642,6 +659,9 @@ printf("  sending message to previous mouse target\n");
 	fDraggingMessage = false;
 
 	fHWInterface->SetDragBitmap(NULL, B_ORIGIN);
+	if (fDragBitmap)
+		gBitmapManager->DeleteBitmap(fDragBitmap);
+	fDragBitmap = NULL;
 }
 
 
diff --git a/src/servers/app/EventDispatcher.h b/src/servers/app/EventDispatcher.h
index fe1d17866d..cc7616d773 100644
--- a/src/servers/app/EventDispatcher.h
+++ b/src/servers/app/EventDispatcher.h
@@ -18,6 +18,7 @@
 
 class EventStream;
 class HWInterface;
+class ServerBitmap;
 
 struct event_listener;
 
@@ -86,7 +87,8 @@ class EventDispatcher : public BLocker {
 
 		int32 ViewUnderMouse(EventTarget& target);
 
-		void SetDragMessage(BMessage& message);
+		void SetDragMessage(BMessage& message, ServerBitmap* bitmap,
+							const BPoint& offsetFromCursor);
 			// the message should be delivered on the next
 			// "mouse up".
 			// if the mouse is not pressed, it should
@@ -140,6 +142,13 @@ class EventDispatcher : public BLocker {
 
 		BMessage		fDragMessage;
 		bool			fDraggingMessage;
+		ServerBitmap*	fDragBitmap;
+			// NOTE: unfortunately, the EventDispatcher
+			// has to know what a ServerBitmap is...
+			// otherwise, linking the libs in the
+			// testenvironment is problematic, because
+			// the alternative is that HWInterface knows
+			// about BitmapManager
 
 		BLocker			fCursorLock;
 		HWInterface*	fHWInterface;
diff --git a/src/servers/app/drawing/HWInterface.cpp b/src/servers/app/drawing/HWInterface.cpp
index d05c17a0c3..6264d5a271 100644
--- a/src/servers/app/drawing/HWInterface.cpp
+++ b/src/servers/app/drawing/HWInterface.cpp
@@ -75,20 +75,18 @@ void
 HWInterface::SetCursor(ServerCursor* cursor)
 {
 	if (WriteLock()) {
-		if (fDragBitmap) {
-			// if a bitmap is being dragged,
-			// we don't currently allow changing
-			// the cursor, part of the reason being
-			// that the original drag bitmap is not
-			// around anymore... but it could be
-			// considered iritating to the user to
-			// change cursor shapes while something
-			// is dragged anyways.
-			// TODO: like a "+" or "-" sign when dragging some files to indicate
-			//		the current drag mode?
-			WriteUnlock();
-			return;
-		}
+		// TODO: if a bitmap is being dragged, it could
+		// be considered iritating to the user to change
+		// cursor shapes while something is dragged.
+		// The disabled code below would do this (except
+		// for the minor annoyance that the cursor is not
+		// updated when the drag is over)
+//		if (fDragBitmap) {
+//			// TODO: like a "+" or "-" sign when dragging some files to indicate
+//			//		the current drag mode?
+//			WriteUnlock();
+//			return;
+//		}
 		if (fCursor != cursor) {
 			BRect oldFrame = _CursorFrame();
 
@@ -97,7 +95,14 @@ HWInterface::SetCursor(ServerCursor* cursor)
 				fCursorAndDragBitmap = NULL;
 			}
 
+			if (fCursor)
+				fCursor->Release();
+
 			fCursor = cursor;
+
+			if (fCursor)
+				fCursor->Acquire();
+
 			Invalidate(oldFrame);
 
 			_AdoptDragBitmap(fDragBitmap, fDragBitmapOffset);
@@ -625,7 +630,8 @@ void
 HWInterface::_AdoptDragBitmap(const ServerBitmap* bitmap, const BPoint& offset)
 {
 	// TODO: support other colorspaces/convert bitmap
-	if (bitmap && !(bitmap->ColorSpace() == B_RGB32 || bitmap->ColorSpace() == B_RGBA32)) {
+	if (bitmap && !(bitmap->ColorSpace() == B_RGB32
+		|| bitmap->ColorSpace() == B_RGBA32)) {
 		fprintf(stderr, "HWInterface::_AdoptDragBitmap() - bitmap has yet unsupported colorspace\n");
 		return;
 	}
@@ -633,7 +639,7 @@ HWInterface::_AdoptDragBitmap(const ServerBitmap* bitmap, const BPoint& offset)
 	_RestoreCursorArea();
 	Invalidate(_CursorFrame());
 
-	if (fCursorAndDragBitmap != fCursor) {
+	if (fCursorAndDragBitmap && fCursorAndDragBitmap != fCursor) {
 		delete fCursorAndDragBitmap;
 		fCursorAndDragBitmap = NULL;
 	}
@@ -701,7 +707,7 @@ HWInterface::_AdoptDragBitmap(const ServerBitmap* bitmap, const BPoint& offset)
 				for (uint32 x = 0; x < width; x++) {
 					// takes two semi-transparent pixels
 					// with unassociated alpha (not pre-multiplied)
-					// and produces a premultiplied
+					// and stays within non-premultiplied color space
 					if (s[3] > 0) {
 						if (s[3] == 255) {
 							d[0] = s[0];
@@ -758,13 +764,16 @@ HWInterface::_AdoptDragBitmap(const ServerBitmap* bitmap, const BPoint& offset)
 		fCursorAndDragBitmap = fCursor;
 	}
 
-// TODO: handle reference counting stuff
+// NOTE: the EventDispatcher does the reference counting stuff for us
+// TODO: You can not simply call Release() on a ServerBitmap like you
+// can for a ServerCursor... it could be changed, but there are linking
+// troubles with the test environment that need to be solved than.
 //	if (fDragBitmap)
 //		fDragBitmap->Release();
 	fDragBitmap = bitmap;
 	fDragBitmapOffset = offset;
 //	if (fDragBitmap)
-//		fDragBitmap->Aquire();
+//		fDragBitmap->Acquire();
 
 	delete fCursorAreaBackup;
 	fCursorAreaBackup = NULL;