Never mind, please close. I figured it out.
It was not Kali. It was ESXI.
I found the following solved the problem:
Step 1 – Power off the VM
Step 2 – Right-click on the VM and select Edit Settings
Step 3 – Select the VM Options tab and expand Advanced. Click on Edit Configuration next to Configuration Parameters.
Step 4 – Using the Name and Value fields at the bottom of the Configuration Parameters dialog box, add the following. Click on Add after each entry.
• Name: isolation.tools.copy.disable, Value: false
• Name: isolation.tools.paste.disable, Value: false

https://www.altaro.com/vmware/clipboard-vsphere/

What was your host client? You mention VMWare Workstation and then ESXi. Thanks for the solution!

I connected to an ESXI server through a Workstation client.
I figured out my blunder by locally installing Kali via Workstation and did not have any issues. Local VM worked, ESXI server VM did not. So I focused on the ESXI server and found the solution.
Copy/Paste text works, but Drag/Drop any files does not (even with setting isolation.tools.dnd.disable, Value: false).
I will work around the Drag/Drop issue by sharing folders or hosting file servers.

Why do ESXI servers disable these features you ask? The answer, security.

image.png (23,699 bytes)   

image.png (23,699 bytes)   

Thanks, closing.