We tested a few scenarios on theme application and we could not reproduce the issue. I tested the latest post of yours and it updates properly in design time in Blend. I also tested UserControls with Windows7Theme from a PRISM solution with shared resources. Again, I did not get the mentioned exception. I suppose that this might be an Expression Blend version issue. The version of Blend that I used for testing is: Expression Blend 4 + SketchFlow, v. 4.0.20525.0.
Please, note that if Windows7Theme is set as a resource and is located outside the UserControl which uses this resource, the design-time will not display Windows7Theme, it will display the default Office Black theme. Still, it will not throw an exception, either.
The inline theme application with telerik:StyleManager.Theme="Windows7Theme" works just fine in the same scenario.
If you could set up a simple working project that reproduces the issue, it will be very helpful for us to test.
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