<TelerikDropDownList Data="@Products"
                     DefaultText="Select Product..."
                     OnItemRender="@OnDropDownListItemRender"
                     TextField="@nameof(Product.Name)"
                     ValueField="@nameof(Product.Id)"
                     Value="@SelectedProductId"
                     ValueChanged="@( (int? newValue) => SelectedProductChanged(newValue) )"
                     Width="200px">
</TelerikDropDownList>

@code {
    private List<Product> Products { get; set; } = new();

    private TelerikDropDownList<Product, int?>? DropDownListRef { get; set; }

    private int? SelectedProductId { get; set; }

    private void OnDropDownListItemRender(DropDownListItemRenderEventArgs<Product> args)
    {
        // args.Item is null for the DefaultText item
        if (args.Item != null && !args.Item.Active)
        {
            args.Class = "k-disabled";
        }
    }

    private void SelectedProductChanged(int? newValue)
    {
        var newProduct = Products.FirstOrDefault(x => x.Id == newValue);

        if (newProduct?.Active == true || !newValue.HasValue)
        {
            // select only active items or DefaultText
            SelectedProductId = newValue;
        }
        else
        {
            // skip disabled items during keyboard navigation
            var oldProductIndex = Products.FindIndex(x => x.Id == SelectedProductId);
            var newProductIndex = Products.FindIndex(x => x.Id == newValue);

            if (newProductIndex > oldProductIndex)
            {
                // skip forward
                SelectedProductId = Products[++newProductIndex].Id;
            }
            else
            {
                // skip backward
                SelectedProductId = Products[--newProductIndex].Id;
            }
        }
    }

    protected override void OnInitialized()
    {
        for (int i = 1; i <= 7; i++)
        {
            var active = i % 3 != 0;

            Products.Add(new Product()
            {
                Id = i,
                Name = (active ? "" : "Disabled ") + "Product " + i,
                Active = active
            });
        }

        base.OnInitialized();
    }

    public class Product
    {
        public int Id { get; set; }
        public string Name { get; set; } = string.Empty;
        public bool Active { get; set; }
    }
}

<TelerikDropDownList Data="@Products"
                     TItem="@Product"                     
                     TValue="@(int?)"
                     Value="@SelectedProductId"
                     ValueField="@nameof(Product.Id)"
                     TextField="@nameof(Product.Name)"
                     DefaultText="Select Product..."
                     ValueChanged="@( (int? newValue) => SelectedProductChanged(newValue) )"
                     Width="200px">
    <DropDownListSettings>
        <DropDownListPopupSettings Class="disabled-items" />
    </DropDownListSettings>
    <ItemTemplate>
        @{ var p = context as Product; }
        <div class="item-div @( !p.Active ? "disabled" : "" )"
             @onclick:preventDefault="@(!p.Active)"
             @onclick:stopPropagation="@(!p.Active)">
            @p.Name
        </div>
    </ItemTemplate>
</TelerikDropDownList>

<style>
    /* remove default item padding to prevent selection outside the template div */
    .disabled-items .k-list-item {
        padding: 0;
    }
    /* add back inner padding */
    .disabled-items .item-div {
        padding: 4px 8px;
    }
    /* style disabled items */
    .disabled-items .disabled {
        cursor: not-allowed;
        width: 100%;
        color: #ccc;
    }
</style>

@code {
    private List<Product> Products { get; set; }

    private int? SelectedProductId { get; set; }

    private async Task SelectedProductChanged(int? newValue)
    {
        var newProduct = Products.FirstOrDefault(x => x.Id == newValue);

        if (newProduct?.Active == true || !newValue.HasValue)
        {
            // select only active items or DefaultText
            SelectedProductId = newValue;
        }
        else
        {
            // skip disabled items during keyboard navigation
            var oldProductIndex = Products.FindIndex(x => x.Id == SelectedProductId);
            var newProductIndex = Products.FindIndex(x => x.Id == newValue);

            if (newProductIndex > oldProductIndex)
            {
                // skip forward
                SelectedProductId = Products[++newProductIndex].Id;
            }
            else
            {
                // skip backward
                SelectedProductId = Products[--newProductIndex].Id;
            }
        }
    }

    protected override void OnInitialized()
    {
        Products = new List<Product>();

        for (int i = 1; i <= 7; i++)
        {
            var active = i % 3 != 0;

            Products.Add(new Product()
            {
                Id = i,
                Name = (active ? "" : "Disabled ") + "Product " + i,
                Active = active
            });
        }

        base.OnInitialized();
    }

    public class Product
    {
        public int Id { get; set; }
        public string Name { get; set; }
        public bool Active { get; set; }
    }
}