The so called application themes replace the default styles of the controls in Generic.xaml. When you change the application theme, the controls do not update their default styles, hence you need to recreate the whole visual tree.
Instead of setting application theme you could use the telerik:StyleManager.Theme attached property on every Telerik control (and most of the standard Silverlight controls) to specify a theme. I suppose that the best would be to provide a Theme property in your view models and bind the attached property to the Theme property - when the Theme is changed, the attached property will update all controls.
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