I am not sure what is causing such an issue. The code snippet you sent works as expected on our side. I tested it with the Q2 2011 release. I attached the sample to give it a try on your side. You can also see the behavior on our side in this screencast
If this doesn't help, please give us more details about the RadControls version you use. Also, you can send us a screencast so that we can examine the drag/drop behavior on your side. Thank you in advance.
All the best,
the Telerik team
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