This behavior is reproducible when the ItemHeight and ItemWidth properties are changed runtime. When thеse properties are changing, and an item is removed, its container is still presenting in the UI, which leads to an empty container.
I you add an item and remove an item from the items source of the panel's host, empty spaces are drawn.
This is reproducible only when using the .NET 4.5 version of Telerik UI for WPF.
To resolve this, avoid using the VirtualizingWrapPanel, or use the .NET 4 version of the Telerik dlls.