You can cancel the operation if you subscribe to the DragEnding, but not to the DragEnded event. Currently, we have an issue with this scenario. When the message box appears, even if you confirm the operation, the node will not be dropped into its new place. This will be addressed for one of our next releases. However, I have made a sample project for you which demonstrates how to workaround this.
If you need additional assistance, do not hesitate to contact me.
Please note that in Q1 2011 we have introduced a major upgrade of RadTreeView control, which is now virtualized and fully customizable. Feel free to download the latest release and try it out. For more information on our latest release refer to this blog post.