The reason this is happening is because ListBox overrides the default ItemsPanelTemplate settings to use a VirtualizingStackPanel. It does this because VirtualizingStackPanel supports UI virtualization, meaning that only the visible controls are evaluated and created, which can improve performance over large sets of data.
During UI virtualization, a control checks the visibility of a child element, then measures it and its descendants. This order of evaluation is the key reason you are seeing extra space. You are using the bound value of a child element to set your parent element's Visibility.
<StackPanel ... Visibility="{Binding ElementName=Phone1, Path=Text, Converter={StaticResource cIsVisibleOrCollapsed}}"><TextBlock x:Name="Phone1" Text="{Binding Path=Phone1}" /></StackPanel>When the framework evaluates your StackPanel, Visibility is not yet set, so it defaults to Visible. You can fix this if you changed the Visibility binding to use the same binding path as the child property instead.
<StackPanel ... Visibility="{Binding Phone1, Converter={StaticResource cIsVisibleOrCollapsed}}"><TextBlock x:Name="Phone1" Text="{Binding Path=Phone1}" /></StackPanel>You could also specify a FallbackValue of Collapsed, which tells the engine to use Visibility.Collapsed in the event it cannot resolve the binding. However, I'd be cautious about doing that because it seems like this would screw up the UI measurements, which might have other unwanted effects.
Finally, the normal ItemsControl template doesn't need to pre-measure because it doesn't support UI virtualization. In other words, the controls are generated and then hidden and the size is adjusted accordingly.
