You can do it by changing the datagriditem data template in the Xaml. You may have to add a property to your object or your form code-behind that can return the Visibility of the object. In my own code, I have a base notifiable object that has properties for IsSelected, IsModified, IsVisible, etc. In your OnSelectionChanged event, all you would have to do is set an IsVisible property to the approiate value, and bind your gridview item's visibility property to the IsVisible property in your object.
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Look for the file Notifiable.cs in the WPFCommon assembly. That should get you started on modifying your viewmodel to accommodate what I suggested above.