Parse event of the property binding is not fired when you change the ToggleState value of RadToggleButton:

Workaround:

private void Form1_Shown(object sender, EventArgs e)
		{
            Binding b = new Binding("ToggleState", vm, "IsToggleSet", true, DataSourceUpdateMode.OnPropertyChanged);
			b.Format += new ConvertEventHandler(b_Format);
			b.Parse += new ConvertEventHandler(b_Parse);
			radToggleButton1.DataBindings.Add(b);
		}

		void b_Parse(object sender, ConvertEventArgs e)
		{
			if (e.DesiredType != typeof(bool) || !(e.Value is ToggleState))
				return;

			ToggleState state = (ToggleState)e.Value;
			e.Value = (state == ToggleState.On) ? true : false;
		}

		void b_Format(object sender, ConvertEventArgs e)
		{
			if (e.DesiredType != typeof(ToggleState) || !(e.Value is bool))
				return;

			bool isToggleOn = (bool)e.Value;
			e.Value = isToggleOn ? ToggleState.On : ToggleState.Off;
		}