With the current version of RadPropertyGrid, only PropertyDefinitions that have a properly set Binding property can have nested PropertyDefinitions. However, as this has proved to be quite a limitation in certain scenarios, we are up to introduce a unbound mode for RadPropertyGrid with our incoming Q2 (a couple of weeks) release that will let users define their own hierarchies, without any dependencies between parent/child or sibling nodes. As a side note, please let me add that instead of loading DataTemplates from xaml string, you can utilize our AutoBind attached behavior
that will let you reuse a DataTemplate definitions for multiple PropertyDefinitions. I am attaching a updated version of your project, having the issue fixed.
All the best,
the Telerik team
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