The described behavior is caused by the fact that the internal drag drop logic of the tree updates the preview line in its Drop event handler. When you handle the PreviewDrop event, the logic for removing the line is not executed.
In order to hide the line you can use the RadTreeView's UpdateDropPreviewLine() method.
sender, Telerik.Windows.DragDrop.DragEventArgs e)
Please let me know if you need any further assistance.
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