If you have .NET 3.5 installed on your machine, the Live Demos you get installed are using the .NET3.5 specific Telerik.Web.UI assembly to demonstrate the .NET 3.5 specific functionality. The installer extracts the .NET 3.5 specific examples to the Live Demos folder as well.
The assembly distribution that you should use in your project are located in the bin
folders of the main RadControls installation folder.
That said, the installer detects the Visual Studio version you have installed. If it cannot find Visual Studio 2008 but only Visual Studio 2005, it only deploys the .NET 2.0 assemblies (e.g. there is only the bin folder in the RadControls installation folder). This comes as Visual Studio 2005 can only target .NET Framework 2.0. For this reason the reference to the Telerik.Web.UI
assembly in your project should point to the Telerik.Web.UI
assembly targeting .NET Framework 2.0 (as I pointed above, it is located in the [RadControlsInstallationFolder]\bin
directory). I suggest that you just change the assembly reference in your project.
Let me know if that helps.
P.S. By the way, the post title mentions a message regarding the Telerik.Web.Design
assembly during install. Are you referring to the message, appearing in the Project Configuration Wizard
the Telerik team