Cannot delete file used by some other process

In order to be able to delete the image while it is displayed in an ImageControl, you have to create a new BitmapImage or BitmapFrame object that has BitmapCacheOption.OnLoad set. The bitmap will then be loaded from file immediately and the file is not locked afterwards.

Change your property from string TemplateImagePath to ImageSource TemplateImage and bind like this:

<Image Source="{Binding TemplateImage}"/>

The set the TemplateImage property like this:

BitmapImage image = new BitmapImage();
image.BeginInit();
image.CacheOption = BitmapCacheOption.OnLoad;
image.UriSource = new Uri(item.FullName);
image.EndInit();
TemplateImage = image;

or this:

TemplateImage = BitmapFrame.Create(
    new Uri(item.FullName),
    BitmapCreateOptions.None,
    BitmapCacheOption.OnLoad);

If you want to keep binding to your TemplateImagePath property you may instead use a binding converter that converts the string to an ImageSource as shown above.