Dear Nayana,
Visual Studio 2005 has no design-time support for WPF. It is not possible to have a control in the toolbox and then add it to a form and have an easy development experience like we're used to with Windows Forms. That capability is coming in Visual Studio "Orcas" (Visual Studio 2007 might be the name, who knows), which may not be too far from being released. And before Visual Studio "Orcas", Microsoft might release the RTM of Expression Blend, which will provide a similar experience but geared towards graphics artists & designers.
Of course Xceed DataGrid for WPF is compatible with WPF -- we designed and built a completely brand new grid to take 100% advantage of WPF.
So... Today, you can't have WPF controls in the .NET 3.0 toolbox, you code directly in XAML and C#/VB.NET.
Odi Kosmatos
VP, R&D, Xceed