To address this I created my own base dialog class that inhertied from this control and created my own DialogClosing event:

using System;
using System.Windows;
using System.Windows.Controls;
using System.Windows.Media.Effects;
using Infragistics.Controls.Interactions;

namespace CriticalPath.OnDemand.OnDemandManager.View {
  public class ModalDialogBase : XamDialogWindow {
    private ModalDialogBase() { }

    public ModalDialogBase(object content) {
      Content = content;
      WireupClosingEvent();
    }

    #region DialogClosing event
    public event EventHandler DialogClosing;
    /// <summary>
    /// Event fires when the NewWindowState property of the dialog is 'Hidden'.
    /// </summary>
    protected virtual void OnDialogClosing(object sender, EventArgs e) {
      if (DialogClosing != null)
        DialogClosing(this, e);
    }

    /// <summary>
    /// Wires up the custom event OnDialogClosing.
    /// </summary>
    private void WireupClosingEvent() {
      WindowStateChanging += (sender, e) => {
        if (e.NewWindowState == Infragistics.Controls.Interactions.WindowState.Hidden)
          OnDialogClosing(sender, e);
      };
    }
    #endregion

  }
}

I then can handle the event myself:

private void OnLaunchEditMessageReceived(CourseLaunchEditMessage message) {
  var dialog = new ModalDialogBase(new CourseEdit()) {
    Height = 350,
    Width = 600,
    Header = "Edit Course Details"
  };

  // wire up dialog closing (so cancel)
  dialog.DialogClosing += (sender, e) => {
    LayoutRoot.Children.Remove(dialog);
    message.Execute(false);
  };

  // show dialog
  LayoutRoot.Children.Add(dialog);
}