I have tested how the Drag and Drop events are fired with the Q2 SP 1 version of the RadControls.
When I define them in XAML, like you have shown, they are fired fine. Along with them I set those 2 properties as well:
Have you defined those two properties as well?
Regarding your 2-nd question, yes, you could use an Image for the DragCue. For more information please refer to this forum post
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