This gives a general idea of going about your problem. You need to optimize
and use some mathematical(micro) adjustments for making it work flawlessly..
I have done the similar implementation in one of my previous assignments.
This should give you a good poit to start.

Hope this is helpful.

 private void pictureBox1_MouseMove(object sender,
System.Windows.Forms.MouseEventArgs e)
 {
      if ( e.Button == MouseButtons.Left )
      {
           this.pictureBox1.Location = new Point(e.X,e.Y);
      }
 }