Yes, this happens because RadControls for ASP.NET AJAX VSExtensions currently uses a project property to indicate that the website/webapplication already uses the VSExtensions. This is because the VSExtensions add perform several actions on the project while converting and we found the project property as the most appropriate way of checking that.
We are considering another option for the next major release though, which will remove the need of first "converting" the website/web application.
In the mean time all you need to do is run the "Convert to Telerik Web Application" wizard and you will get the other menu options available.
the Telerik team
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