I checked the registry. The perceived type was already set at text, but the content type listed it as ms-excel. So I set the content type as text as well, and restarted.

But it did not make a difference. Still got the error message when I tried to drag after going to

What would you like to do?… Open document or browse examples…Local file…DRAG

I still got an error message.

But I have found a couple of more workarounds, apart from using a different browser.

I can still drag in a local file in Chrome by doing the following:

What would you like to do?… Create a new document…Stack icon…Import…Local file…DRAG

Another way that works with Chrome if the file is uploaded is

What would you like to do?… Create a new document…Stack icon…Import…URL…(copy pasted URL from Google sheets)