if you want to display a tree view like structure inside a drop-down list, better you may use theRadDropDownTreecontrol which is available in the Q1 2013 version.The RadDropDownTree control is a combination of a lightweight dropdown and a tree control.
The approach with entries like in the RadAutoCompleteBox is used. Basically, an new entry is created as a result
of node's selection from the tree.
To get a clear idea about this control, please have a look at the online demo.