What is the version you use? The documentation article you refer to is not part of our latest version and I cannot reproduce your problem in the Q2 SP1 2009 that is currently available on our website. We used to have similar problems with one of the previous versions that wasn't built specifically for Silverlight 3. If you are using anything older than Q2 SP1 2009 released on August 12, you should update your assemblies.
We encourage you not to declare RadWindow in xaml, since we detach the control from the visual tree and its declaration becomes meaningless. Moreover, declaring the control in xaml will introduce layout logic that will not be preserved if we detach the control from the visual tree and allow you to drag and drop the control.
Hope this resolves your problems.
the Telerik team