1 - The idea
The idea is nice and can probably be used in professional applications where you have direct contact with users and can explain them how things work, but not necessarily on public websites where users don't want to RTFM and are just looking for familiar behaviours. Unless it was just a sample exercise or a control meant to be included it in a control pack, it violates the YAGNI principle ;)
2 - The implementation
You certainly noticed that the implementation is buggy (at least on IE7 and FF3.1B2). Sometimes, a gesture above all checkboxes will select all of them but one or two. Moving the mouse over the div's above or below the list will stop the drag (I know it's a "feature", but it's not very user friendly). I Checked the source code and to be honnest, while it looks pretty neat, I just didn't want to deal with it because it is plain javascript. Don't you know that...
3 - Possible improvements
...you can write less and do more with a javascript library, typically jQuery. I would completely rewrite this control as a jQuery plugin. It will provide you with a lot of tools to make your code much easier to write, maintain and extend. Just try it, you'll love it. This is from a technical point of view. From a user point of view, try to make you control as familiar as possible, like what Angela suggested, windows explorer : a nice selection rectangle, the ability to use shit + click, or something like that. Finally, remember that for many windows checklistbox users, "selected" and "checked" are two different things.