This caught me too. They moved the Skins out of Telerik.Web.UI.dll to Telerik.Web.UI.Skins.dll. Here's a link to the blog
So you need to add a reference to Telerik.Web.UI.Skins.dll. I tried to go where the blog said to go, but that release directory wasn't there. I was assuming that upgrading through the Visual Studio Telerik menu was maintaining these directories, but not so evidently. So, I just downloaded the Q3 Release and started from scratch.
I went to "Your Account" (upper right on this page) -> Download and Manage your products -> Download Installer and Other Resources, then ran the msi.
After I did that the dll was in C:\Program Files\Telerik\RadControls for ASP.NET AJAX Q3 2011\Bin40.
Right-click on Bin in your project and click Add Reference -> Browse tab -> then use the above path to find Telerik.Web.UI.Skins.dll. Select it and hit OK, then recompile, cross your fingers, and go...