When creating an ASP.NET AJAX site , you should choose "ASP.NET AJAX-Enabled Website" from the Templates field in Visual Studio - this will ensure that the web.config that will be automatically created will be ASP.NET AJAX enabled.
As an alternative, you can use a web.config file from another Ajax application. For example - the ASP.NET 2.0 AJAX Extensions one. For convenience I attached to this thread the default web.config file from ASP.NET 2.0 AJAX Extensions v1.0.61025.
I hops this helps.
the Telerik team
Check out Telerik Trainer, the state of the art learning tool for Telerik products.