Jay,
Im also using IE8 and I dont have this error.
But... after thinking about it have you tried putting a normal upload control on the page? If so, do you get the same error? Because the Telerik controls prob just piggyback on the back of the normal control. You could try the old html version of the file upload as well to see if the same problem occurs.
Normal aspx control
<
asp:FileUpload ID="FileUpload1" runat="server" />
Old html version of the upload.
<
input type="file" name="htmlFileUpload" size="40"/>
As far as I know, IE keeps the default upload directory, rather then the page that is serving the control.
Hopefully something there helps,
Matt