This is likely to happen if you're running on an ATI Graphics Card. Thanks to them dropping OpenGL support in their latest drivers (anything above 7.11), you can't select anything in Hammer's 3D window.
Download this file
and place the atioglxx.dll file that is inside the zipfile in your Hammer root directory (IE: C:\Program Files\Valve Hammer Editor\)
NOTE: This solution won't work on all video cards !
You are now able to select objects in the 3D window using the latest ATI driver on Windows XP.
Thanks to MuzzleFlash and raver for the info and files.
NOTE: This solution has not been tested on Windows Vista.