It works for me. However, I don't copy and paste the sequences. I drag and drop them from the Project Panel.
What is it you are doing exactly? Step by Step.
i'm doing exactly what you've said. i;m grabbing sequences 1 and 2 from the project clips window and draggin' them to sequence 3. then i try to apply the transition and he won't let me.
I bet it's a handles issue - leave some slop at the end of Sequence 1 and at the beginning of Sequence 2. Then trim the sequences back to where you want them to transition, then apply.
If you have the Sequences already extended as far as they will go and you try to transition them, Premiere will only do one side or the other (what you're talking about).
All the best!