I updated my Lumia 520 to the latest Lumia Denim firmware yesterday, and now I am not able to create live folders. I have dragged one app over another but it did not work.
That is how we create them right?
Folders are not a feature of the Lumia Denim firmware but are introduced with the Windows Phone 8.1 Update 1. Check if your OS version matches on of these:
Windows Phone 8.1 Update OS version: 8.10.14141.167, 8.10.14147.180, 8.10.14157.200, 8.10.14176.243, 8.10.14192.280, 8.10.14203.206, 8.10.14219.341, or 8.10.14226.359