Hello Michael Paterson,
I accidentally gave you an internal link; here's the link
to the public thread I previously mentioned.
I agree the Clear Cookies step is not ideal for your application, but I'd like to confirm it works for another public site, like Gmail for example. That way we can isolate that it is your app's cookies specifically that Test Studio is having difficulty with.
Let me know once you've upgraded and if the issue persists. I will send you an email to the address on file for you to reply with credentials for us to test with.
the Telerik team
for a live 'What's New in Test Studio R1 2011 SP2' event on Tuesday, July 19 at 2pm EST!
Have you looked at the new Online User Guide
for Telerik Test Studio?