It is nice to see your quick reply. I tried following things as you suggested
(a) I verified the assembly version and it is 2008.2.826.0.
(b) I downloaded the controls again and now error message is changed to "Cannot create an instance of RadComboBox". (this is little strage as assemblies are same version)
The exception stack trace shows TargetInvocationException, the inner exception is "Method not found: 'Void System.Resources.ResourceManager..ctor(System.String, System.Reflection.Assembly, Boolean)'".
(c) Visual Studio is able to create instance of RadComboBox from the same set of assemblies, so I would believe assemblies are correct, it is only the Expression Blend which is failing due to some reason.