While surfing thru different forum I noticed that, lots of people are actually facing issues while trying to implement the drag and drop feature. The main problem arises while trying to drag from a ListBox to a panel like canvas. In this post, I will go thru the steps to demonstrate such feature.

Here I will use Telerik control to give out the demonstration. You can download the trial version of the dlls from Telerik Silverlight Control Page. I have implemented the demo using Silverlight 4 Beta 1. The same thing is also possible in earlier version of Silverlight. You can download Silverlight SDK from Silverlight Site. To develop apps in Silverlight 4 you must need Visual Studio 2010 Beta 2 which you can download from Microsoft site.

So, lets go for implementing the same. Create a Silverlight project. Lets create a ListBox and a Canvas inside the LayoutRoot:

<Grid x:Name="LayoutRoot" Background="White">
    <Grid.ColumnDefinitions>
        <ColumnDefinition Width="150"/>
        <ColumnDefinition Width="*"/>
    </Grid.ColumnDefinitions>
    <ListBox x:Name="lstBox" Margin="10" Grid.Column="0"/>
    <Canvas x:Name="cnvDropBox" Background="Yellow" Margin="10" Grid.Column="1"/>
</Grid>
Now in the code behind, we have to register the Drag and Drop events for the ListBox & Canvas. Use RadDragAndDropManager class to register the same. 
RadDragAndDropManager.AddDragInfoHandler(lstBox, OnDragInfo);
RadDragAndDropManager.AddDragQueryHandler(lstBox, OnDragQuery);
RadDragAndDropManager.AddDropInfoHandler(cnvDropBox, OnDropInfo);
RadDragAndDropManager.AddDropQueryHandler(cnvDropBox, OnDropQuery);

RadDragAndDropManager.SetAllowDrop(cnvDropBox, true);
The implementation of the events will be as below:
private void OnDragQuery(object sender, DragDropQueryEventArgs e)
{
    if (e.Options.Status == DragStatus.DragQuery)
    {
        var draggedListBoxItem = e.Options.Source as Image;
        e.Options.DragCue = draggedListBoxItem.Source;
        e.Options.Payload = draggedListBoxItem.Source;
    }

    e.QueryResult = true;
    e.Handled = true;
}
private void OnDragInfo(object sender, DragDropEventArgs e)
{
    if (e.Options.Status == DragStatus.DragComplete)
    {
        // comment this block if you are going to clone
        lstBox.Items.Remove(e.Options.Source);
    }
}
private void OnDropInfo(object sender, DragDropEventArgs e)
{
    var droppablePanel = e.Options.Destination;

    if (e.Options.Status == DragStatus.DropComplete && droppablePanel is Canvas)
    {
        FrameworkElement dragableControl = null;
        Point desiredPosition = new Point();
        Point currentDragPoint = e.Options.CurrentDragPoint;
        Point canvasPosition = cnvDropBox.TransformToVisual(null).Transform(new Point());

        if (e.Options.Source is Image)
        {
            // create the new instance & update the necessary properties
            // this step is require if you are going to make a clone
            Image tempDragableControl = e.Options.Source as Image;
            dragableControl = new Image() { Source = tempDragableControl.Source };
            cnvDropBox.Children.Add(dragableControl);
        }

        desiredPosition.X = currentDragPoint.X - canvasPosition.X;
        desiredPosition.Y = currentDragPoint.Y - canvasPosition.Y;
        dragableControl.SetValue(Canvas.LeftProperty, desiredPosition.X);
        dragableControl.SetValue(Canvas.TopProperty, desiredPosition.Y);
    }
}
private void OnDropQuery(object sender, DragDropQueryEventArgs e)
{
    var droppablePanel = e.Options.Destination;

    if (e.Options.Status == DragStatus.DropDestinationQuery && droppablePanel is Canvas)
    {
        e.QueryResult = true;
        e.Handled = true;
    }
}

As I am using Image inside the ListBoxItem, hence OnDragQuery I am setting the Source as an Image to the DragCue & PayLoad properties. OnDragInfo I am removing item from the ListBox. If you don’t want to remove the dragged image from the ListBox then just remove that line. OnDropInfo I am just placing the Image to the appropriate position which we will get as CurrentDragPoint in the DragDropEventArgs.

This is a sample demonstration. So, you have to explore it more to fulfil your requirement.

Download Sample Application:  Drag And Drop ListBoxItem to Canvas Demo

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