Hello Lisa Smith,
Yes, this happens because Popups in Silverlight open in a separate visual tree and are not considered for drop targets out-of-the box.
We handle this for all telerik windows / popups but external ones need to be registered:
http://www.telerik.com/help/silverlight/raddraganddrop-child-window-non-telerik-popups.html
http://www.telerik.com/community/forums/silverlight/drag-and-drop/drag-amp-drop-works-except-inside-a-popup.aspx
Greetings,
Miroslav
the Telerik team
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