There is a known issue with the 2011 Q2 RadFormDecorator for ASP.NET AJAX installation which prevents the new project from working in combination with RadCaptcha Audio Files enabled.
As a temporary workaround you could disable the Copy RadCaptcha Audio Files
option from the second page of the wizard. We will do our best to have resolve the issue for our next official release.
If you want to use RadCaptcha with our current release, you could simply download the RadControls for ASP.NET trial installation package. It contains a fully functional version of the free RadFormDecorator control as well.
Sorry for the inconvenience.
the Telerik team