I am having the same problem. Some solutions from other threads suggest enabling anonymous authentication (done - doesn't help) and a snippet of script to tell Telerik that Flash is not available (done - didn't help either).
When I test this with debug-by-alert; a “FileSelected” event fires on the client and a “FileUploading” fires on the client. But not the “ClientFileUploaded’ nor “FileUploadError”. The event handler in the codebehind never gets called either. It appears to just hang after “FileUploading” … waiting for something or blocked by something.
No files appear in the temporary upload area (App_Data\RadUploadTemp).
I am using NT security on a local machine, with a local user id which is in the administrators group.
For what it's worth, the same async upload works when accessing a site (machine) using Active Directory security.