We have created the first DiagramLite build compatible with Silverlight for Windows Phone 7. It will be included in the 1.8 release in a few weeks. If anyone considers porting your project to WinPho7, please give this version a try:
https://mindfusion.eu/_beta/diaglite.winpho7.zip

It contains all the standard Diagramlite features except printing and browser integration (DiagramHost class and JavaScript events).

The WinPho7 ScrollViewer interferes with the diagram's itneractive drawing functionality. If items must be drawn interactively, handle the following event to prevent scrolling:

private void ScrollViewer_ManipulationStarted(object sender, ManipulationStartedEventArgs e)
{
	e.Complete();
}