Okay I have managed to find the problem here but have no idea why this occurs and maybe someone can give some indication of what is going on.
The problem has something to do with the depth (in terms of folder structure) of the form hosting the controls.
Here is what I have:
Project.csproj (Web) //this is a web application
// a few .ascx files
// a few .aspx files
frmOpportunityAllocate.aspx hosts the usercontrol opportunity-search.ascx (which contains the ajaxed radgrid) for some of its functionality.
Here is where things get weird. In the structure described above, the ajaxed rad grid throws the wobbly I have described in my previous page. If I move the frmOpportunityAllocate.aspx page into the folder "above it" (Webforms), the issue described in my previous post does not occur.
the page frmOpportunityAllocate.aspx uses materpage Main.master and is hosted in an iframe- but this shouldnt make much of a difference.
If any more detail is required- please let me know.