I got it! There was a similiar problem "Narration won't show in timeline with PREL 8.0" from smetlogik2 (10 posts since 10-30=2009)
It had to do with the Work Area Bar (grey area bar at top of timeline. It looked O.K. period to me but I reset it just the same and now the project accepts narration. Forums are ac wonderful thing!
Glad that you found the culprit. For more info on the WAB (Work Area Bar), see this ARTICLE. The WAB is a great, and very useful tool, but sometimes, it can create little "problems."
One thing to also be aware of is that initially, the WAB will automatically expand to include newly added Assets, but once it has been manually adjusted, that "automatic" expansion aspect will turn off, and the user will then need to manually extend it, to include newly added Assets. I find that the easiest way to do so is to zoom out on the Timeline via the \ (Backslash key), and then just Dbl-clicking on the little "box" in the middle of the WAB. One needs to have the full Timeline viewing, to get that to work, as desired.