As I understand from your explanation - you have deployed RadControls for ASP.NET Ajax under SharePoint 2007 correctly.
There has to be something else that causes this issue to appear.
I tried to reproduce the issue locally under SharePoint 2007 with a master page that contains RadMenu. On my side “Common RadMenu Tasks” appear properly in SharePoint Designer when I click on the arrow handle at the right top edge of the RadMenu.
Could you please try setting the view in SharePoint Designer to "Split", select the RadMenu from the markup and then click on the arrow handle under “Design” view?
If the issue persists - can you send me the master page that you use?
What is the version of RadControls for ASP.NET Ajax that you use?
Additionally - please explain in more details what you mean by "I'm just not able to manipulate the controls from a GUI perspective".
the Telerik team