EDIT ======================================================================
for others that follow.
good solution is here...
http://www.telerik.com/community/forums/aspnet-ajax/general-discussions/alwaysvisiblecontrol.aspx
Don't bother reading below, big waste of time.
6 Answers, 1 is accepted
We do not offer such a component, however our controls are compatible with the ASP.NET AJAX Toolkit (since they are both built on top of the ASP.NET AJAX framework) and you should be able to use the Toolkit's AlwaysVisible extender side by side with our components.
Additionally, for side by side comparison of our controls and those from the AJAX toolkit, you may review this page.
Greetings,
Sebastian
the Telerik team
Thank you for being the most amazing .NET community! Your unfailing support is what helps us charge forward! We'd appreciate your vote for Telerik in this year's DevProConnections Awards. We are competing in mind-blowing 20 categories and every vote counts! VOTE for Telerik NOW >>

I think that the information from this public forum post can help you eliminate the exception you receive and use the AJAX toolkit and our controls in the same project.
Best regards,
Sebastian
the Telerik team
Thank you for being the most amazing .NET community! Your unfailing support is what helps us charge forward! We'd appreciate your vote for Telerik in this year's DevProConnections Awards. We are competing in mind-blowing 20 categories and every vote counts! VOTE for Telerik NOW >>

After several hours following every last suggestion on that huge post I was able to remove the exception. But now on a PanelBar when I click a bar it does a full page postback. So... no exception... but does not work together properly. This was a brand new download of both RAD tools and ASP.Net Control Toolkit.
What else can I try ?
Have you ajaxified the panelbar via an ajax manager or a panel? Thus it should perform server operations with async requests instead of plain postbacks.
Regards,
Sebastian
the Telerik team
Thank you for being the most amazing .NET community! Your unfailing support is what helps us charge forward! We'd appreciate your vote for Telerik in this year's DevProConnections Awards. We are competing in mind-blowing 20 categories and every vote counts! VOTE for Telerik NOW >>

<telerik:RadScriptManager ID="RadScriptManager1" runat="server">
<Scripts>
<asp:ScriptReference Assembly="System.Web.Extensions, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35"
Name="MicrosoftAjax.js" Path="Scripts-40412/MicrosoftAjax.js" />
<asp:ScriptReference Assembly="System.Web.Extensions, Version=3.5.0.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35"
Name="MicrosoftAjaxWebForms.js" Path="Scripts-40412/MicrosoftAjaxWebForms.js" />
</Scripts>
</telerik:RadScriptManager>
Is there a sample app that shows how to include the now current version of Rad tools and now current version of ASp.Net Ajax toolkit together?