When upgrading the 'classic' controls, I just installed 'em, removed the old references in my project and added them back pointing at the new version of the controls.
I've just done my first upgrade of AJAX controls (2007.3 to 2008.1) and did the same thing I'd do with the 'classic' controls. Whilst the project compiled OK when I tried to run it the system complained. Basically it was looking for the old version of the controls. I had a look in the web.config file and the <httphandlers> element included this ...
|<add path="Telerik.Web.UI.WebResource.axd" verb="*" type="Telerik.Web.UI.WebResource, Telerik.Web.UI, Version=2007.3.1425.20, Culture=neutral, PublicKeyToken=121fae78165ba3d4" validate="false"/>
I changed the line to read the correct version number and everything was OK.
The question is, is having to make this change manually normal, or is there something else I should have done to ensure that the project was correctly updated?