Many people reported issues after upgrade from Atlas/Ajax Beta or CTP to the most recent RC build (1.0.61025). Typical symptoms are:

1. UpdatePanel, ScriptManager and other ASP.NET Ajax elements are squiggled as 'unrecognized'.
2. Formatting lost in UpdatePanel when switching from Design to Source view.
3. Weird __designer::wfdid attributes appear on ASP.NET Ajax elements
4. No intellisense is available for any of the new controls.

The reason it is happening is that structure of the ASP.NET Ajax-enabled Web site has changed. Name of the Ajax assembly changed as well as it's location and the namespace. Here is what you can do:

1. Before you install ASP.NET Ajax RC, make sure you uninstalled any previous releases.
2. After you install ASP.NET Ajax RC:

• Remove reference to the old assembly which may still be sitting in the bin folder of the Web site or simply delete the old assembly from bin.
• Delete cached intellisense schemas in
  • C:\Documents and Settings\USER\Application Data\Microsoft\VWDExpress\8.0\ReflectedSchemas
  • C:\Documents and Settings\USER\Application Data\Microsoft\Visual Studio\8.0\ReflectedSchemas
• Add a web config file to the Web site from C:\Program Files\Microsoft ASP.NET\ASP.NET 2.0 AJAX Extensions\v1.0.xxxx.

If site already has config file, you may have to manually add sections to it as described here: http://ajax.asp.net/docs/ConfiguringASPNETAJAX.aspx