According to MSDN (Layout Considerations for the WindowsFormsHost Element)
A hosted Windows Forms control is drawn in a separate HWND, so it is
always drawn on top of WPF elements.
This is a design limitation
Another good article from MSDN that explains possible issues when using different graphical technologies in Windows is Technology Regions Overview
However googling I found that there seem to be some hackings for this (known as airspace restriction)
One hack (never tried it personally so not sure if it works) is at