My RadGrid's MasterTableView is set for ShowHeadersWhenNoRecords="False". Is there a similar setting for the Group Panel (Drag a column header and drop it here to group by that column) above the header?
It seems strange that the Group Panel would show if I am trying to hide the header when no records. Especially when the default message is referencing "column headers" which are hidden by the ShowHeadersWhenNoRecords="false". I will mark this as the answer, but I wish this could go to your enhancement list.