I was having this same problem, only it wouldn't defrag for me even when I highlighted it. It will defrag with a boot-time derfrag. This might have already been mentioned elsewhere, but I actually couldn't defrag the page file at one time either, but I discovered a little trick with that. If you go into your settings (control panel/system/advanced/performance-settings/advanced) in XP and set your paging foe to 0 (no paging file), you can defrag everything, then just set it back up to whatever you need it at. It will start fragmenting soon after, but at least you'll be starting with a clean slate.
