The ShowBone method displays the picture in its new location. It draws the bacground image onto the form to erase the previous picture. Then it draws the dragged image on top.

Private m_DogBitmap As Bitmap
Private m_BoneBitmap As Bitmap
Private m_Dragging As Boolean

Private Sub Form1_Load(ByVal sender As System.Object, ByVal _
    e As System.EventArgs) Handles MyBase.Load
    ' Save the dog image.
    m_DogBitmap = New Bitmap(Me.BackgroundImage)

    ' Save the bone image.
    m_BoneBitmap = picBone.Image
    m_BoneBitmap.MakeTransparent(Color.Red)
End Sub

' Display the bone.
Private Sub ShowBone(ByVal X As Integer, ByVal Y As Integer)
    Dim gr As Graphics = Me.CreateGraphics()

    gr.DrawImageUnscaled(m_DogBitmap, 0, 0)
    gr.DrawImageUnscaled(m_BoneBitmap, X, Y)
End Sub