Please use the assemblies from the bin35 folder, which are compiled against the 3.5 version of the framework when using VS2008. You can change the version attribute in your web.config from 2007.3.1314.20 to 2007.3.1314.35. Also make sure that you have Telerik.Web.Design.dll added to your project as well. If you are using Vista, we have the design problem in mind and it will be resolved with the next service pack by the end of the month.
the Telerik team