When I try to drag and drop another image onto it
How exactly? Do you drag it into the Canvas?
You could use File > Place … instead.
That seems to be a work around
Originally it would allow the second image to appear in the canvas and then I could select an area within that second image and then paste it onto the original/background
It does not allow that any more
If you want to have several images as separate windows you could chose Standard Screen Mode (F) and turn off tabbing and docking (Photoshop > Preferences > Workspace > …).
Thanks again but it's not that quite what I was looking to achieve. Until yesterday I opened one image and when I simply dragged a second image onto the same canvas it simply created a new layer.
Your earlier suggestion works but I would love to find out what has changed or what I have done to prevent this happening since yesterday.