I believe that the text in the SelectListItems is encoded and that is you cannot matching word while typing. I will suggest you stop encoding text. Use .Encode(false) method.
Nevertheless we was able to improve encoding functionality in the ComboBox UI component. Thus in the next official release of Telerik extensions for ASP.NET MVC filtering by Unicode characters will be supported with Encode(true).
Best wishes,
Georgi Krustev
the Telerik team
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