What you observed while changing the ItemsSource property is the expected behavior. In fact, all ItemsControls behave in the same way. When you set (or reset) the ItemsSource property, what happens behind the scenes is that RadPanelBarItem objects are created on the fly and used to wrap your business objects. So, when you change the ItemsSource, the visual elements are destroyed and new ones a created for your new data source.
In case you need to update only certain items in your source and/or you want to avoid the re-generation of the visual items you should use an ObservableCollection for your data source. If you have a hierarchy of objects, you will need to make their items collections ObservableCollections as well. This way any changes in your source collection will be reflected in the layout of your application without rebuilding the entire tree of visual elements that comprise your PanelBar.
I hope I was able to help. Please let me know if you have any other questions.
the Telerik team