I've managed to get this working.
There is a problem with the calculation of the z-index. This occurs in the popup code. Looking at the code I can see two problems. One is that the loop that looks at the parents of the popup doesn't actually set anything (local var never does anything with higher level var) and also the loop is set to return false the first time (???).
I have modified this so that the internal var updates the higher level zIndex var and also commented out the return false line. It now works fine for me every time. I can provide a fix for the minified version. You will need to search for the following code and then replace it.
Mods, please let me know if it is not acceptable to post code in this form. I have only posted the minified version (as all should have access to this via the GPL download). Keep in mind that this is not official and I am not a member of the KendoUI team. This comes with a big "use at own risk" warning. As soon as the next release of kendo comes out this should not be a problem anymore.