Hi, indeed while dragging the mouse move event is suppressed. This is a common approach when performing drag drop operations. However, even if we did not do it the mouse move event is not raised for collapsed elements (as demonstrated for CollapsedTargetGrid in the attached project)
What I can suggest is to use zero opacity and reduced height(or width) to save space, while in the same way leaving area that is hittest visible. Then you can switch between hidden/shown state using the DragDrop events as show in the example. In addition this can be wrapped in two distinct states of the visual style manager of the listbox and just switch between them and providing ability to add transitions as well.
the Telerik team
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