I have followed the documented instructions but the four headed arrows don't appear and so U can drag images into a new order.

Of course it does. Check your settings about ordering in your FPSS module too please.

I don't even see the four arrow to even move it up or down.

Also the order numbers are grayed out.

Something is definitely screwy here.

The following worked for me...

I'm using: Frontpage Slideshow v3.2.0 on Joomla2.5.4

I've tried the following instructions and it's NOT working: www.joomlaworks.net/content/view/71/41/

CUSTOM SLIDE ORDERING

If you want to arrange a category's slides under a specific order, you need to enable "ordering" in the backend.
To do so, follow these steps:

    In the "slides" list, filter a certain category from the drop down, located on the top-right, just above the slides list.
    Now you see the slides for that particular category. Hit the "Order" table header, so manual ordering is enabled.
    Re-arrange a slide by clicking, holding and moving the 4-directional arrow. You can then place the slide anywhere you want in the list of slides for that category.

(see the 9th screenshot below, in the screenshots area)