Yes, indeed the visual is not updated. This is a know limitation which has very easy workaround:
Set the DragCue to a ContentControl and change its Content instead of setting a new DragCue.
Another idea is to use a ContentControl and set its content to the Payload and its ContentTemplate to a suitable DataTemplate that will display the currently dragged items and any text you like (which could possibly be bound to a property of the payload).
Hopefully this will work for you,
the Telerik team