I haven't done a whole lot with the now ASP.Net AJAX since it was "Atlas" back in the day; and so I had forgotten a few things I knew a the time. When adding ASP.Net AJAX to your projects, remember to include within the web.config file of your main application all of the templated configuration settings found in the web.config file installed with the AJAX Extensions.
You can find this web.config file here:
%ProgramFiles%\Microsoft ASP.NET\ASP.NET 2.0 AJAX Extensions\v1.0.61025
Basically just snag from it all of the sections and import them into your web.config file. It seems a bit archaic, yes, but that's what you have to do in order to setup all of the HTTP Modules and whatnot needed by the AJAX runtime.
....I couldn't find any kind of wizard in Visual Studio to do this automagically. If you find one, let me know.