I have Ubuntu 11.10 installed but recently i can't paste ANYTHING outside my root folder being it on an external drive or a different partition.
The 'paste' option actually becomes greyed out.
I warmly appreciate any help please.

that's strange usually its only the root folder where you can't tamper with the files manually

Does the shortcut key work or maybe the terminal command for copy paste work?

I suggest to first check the folder's properties if you have the right permissions like read and write
next try to run nautilus with administrator priveleges by
1. run dialog box by pressing Alt+F2
2. then type gksudo nautilus
...this is to check if you can copy paste any items on any folder

if this doesn't work you might be missing the packages for the paste, and might want to consider a clean reinstall but consider this a last resort

I'm not sure if there's another way so you may get better help on http://ubuntuforums.org
there's alot of members there that's knowledgeable for ubuntu related problems