Hi jnh999,
The issue you are describing seems like the destination treeview does not have background. In SL these element are not hittest visible to the mouse. In order to make it work one needs to set background to transparent or any other color.
About the treeview Background highlight, I can suggest using the new event (available in our latest internal builds) DragOverTree, where you can set the background depending on the status.
Regards,
Tsvyatko
the Telerik team
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