Not sure exactly how, but the Prop edit tool seems to have fixed itself, after trying your suggestion, Myn (thanks!) and reopening the problem file. It may not have been all that broken to begin with.
One thing I’ve noticed (and this probably contributed most to the original issue) is that the default influence radius circle is apparently very small, less than one unit diameter (?). So if you’re working in a real-life scale like I am (1BU = 1cm), you may not even see it when it’s first enabled.
It also seems that the radius circle can be hidden by other geometry in the scene, making it even harder to see.
Compounding all the other probs, changing the circle radius requires Alt+MW on my system, contrary to what the manual states (MW alone), so again, getting it to work right was a matter of trial and (more than a little) error.
Great tool once it can be persuaded to work!