Yes, you are right that the two points are not relative but absolute.
You can get the relative coordinates of the mouse to the diagram element by finding its absolute position and then substracting them, like so:
var topLeftOfDiagramElement = diagramElement.TransformToVisual(null).Transform(new Point());
var relativeMouseX = e.Options.CurrentDragPoint.X - topLeftOfDiagramElement.X;
var relativeMouseY = e.Options.CurrentDragPoint.Y - topLeftOfDiagramElement.Y;
We are planning to add another property that will give you the relative position with regard to the destination, it is expected to appear for 2010.Q1.
the Telerik team