To reproduce: please open the attached sample project and follow the steps illustrated in the attached gif file.

Workaround: 
1. You still can scroll while dragging a row by using the mouse wheel.

2. Use the grid in unbound mode and set the AllowRowReorder property to true instead of using a custom RadDragDropService.

3. Use a custom drag and drop service:

public class CustomDragDropService : RadGridViewDragDropService
{
    public CustomDragDropService(RadGridViewElement gridViewElement) : base(gridViewElement)
    {
    }

    public override string Name
    {
        get
        {
            return typeof(RadGridViewDragDropService).Name;
        }
    }

    protected override void HandleMouseMove(System.Drawing.Point mousePosition)
    {
        base.HandleMouseMove(mousePosition);
        System.Drawing.Point location = this.GridViewElement.ElementTree.Control.PointToClient(Control.MousePosition);
        GridTableElement tableElement = this.GetTableElementAtPoint(location);

        ISupportDrag supportDrag = this.Context as ISupportDrag;
        object dataContext = supportDrag.GetDataContext();

        if (this.AllowAutoScrollRowsWhileDragging && dataContext == null)
        {
            ScrollRows(tableElement, location);
        }
    }

    private void ScrollRows(GridTableElement tableElement, System.Drawing.Point location)
    {
        ScrollableRowsContainerElement scrollableRows = tableElement.ViewElement.ScrollableRows;
        RadScrollBarElement vScrollbar = GetVeritcalScrollbar(tableElement);
        System.Drawing.Rectangle containerBounds = scrollableRows.ControlBoundingRectangle;

        if (containerBounds.Contains(location) ||
            location.X < containerBounds.X ||
            location.X > containerBounds.Right)
        {
            return;
        }

        int delta = 0;

        if (location.Y > containerBounds.Bottom)
        {
            delta = location.Y - containerBounds.Bottom;
        }
        else if (location.Y < containerBounds.Y)
        {
            delta = location.Y - containerBounds.Y;
        }

        if (delta != 0 && vScrollbar.Visibility == ElementVisibility.Visible)
        {
            vScrollbar.Value = ClampValue(vScrollbar.Value + delta,
                vScrollbar.Minimum,
                vScrollbar.Maximum - vScrollbar.LargeChange + 1);
        }
    }

    private int ClampValue(int value, int minimum, int maximum)
    {
        if (value < minimum)
        {
            return minimum;
        }
        if (maximum > 0 && value > maximum)
        {
            return maximum;
        }
        return value;
    }

    private RadScrollBarElement GetVeritcalScrollbar(GridTableElement tableElement)
    {
        if (GridViewElement.UseScrollbarsInHierarchy)
        {
            return tableElement.VScrollBar;
        }
        return GridViewElement.TableElement.VScrollBar;
    }
}

public RadForm1()
{
    InitializeComponent();
    CustomDragDropService customService = new CustomDragDropService(radGridView1.GridViewElement);
    radGridView1.GridViewElement.RegisterService(customService);
}