I prepared a sample project for you that demonstrates a TreeView bound to ObservableCollection. You can drag a tree item and drop it to another place in the tree without copying it (simply moving it). If the solution doesn`t works in your scenario, you can use the project as a starting point and modify it to show the issue you have come up with. Thank you in advance for your cooperation.
the Telerik team
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to help you get started with RadControls for Silverlight