Unfortunately my XAML skills aren't so sharp, because the issue was just that I forgot the <ItemsControl.ItemsPanel> element before ItemsPaneltemplate element.
Also my entire concept was a dead end. It only enabled dragging on the entire container, not the individual items themselves.
I just ended up binding my items manually via observable collection change events and removing the ItemsControl so that I could enable dragging on individual items in the panel. Not sure how reliable this will be, but it's all I can do until I find
a better solution.
Sorry for wasting your time.