Hello Mark,
We were able to reproduce the problem with paging. Also we tested the WebMailDemo with a standard update panel (without AjaxManager) and the problem appeared too. That's why we believe it is a common asp.net ajax 4.0 issue.
Nevertheless I forwarded it to our development team for further investigation.
In the meantime I suggest you use .net 3.5 as a target framework or to disable RadAjax (EnableAjax property of RadAjaxManager set to false)
Regards,
Helen
the Telerik team