SharePoint now has support for .NET 3.5. This support was impoved after SP1 for WSS 3.0 and MOSS 2007 was released.
To get AJAX and .NET 3.5 working, you need to make a few changes to the web.config file. Make sure that you are *very careful* when making these changes…..
Have a look at Patrick Tisseghem’s post about configuring SharePoint for Silverlight… It has all of the information needed to get .NET 3.5 and AJAX up and going too. The web.config file that he has attached is very useful – http://www.u2u.info/Blogs/Patrick/Lists/Posts/Post.aspx?ID=1794
I will post some examples of using the AJAX Control Toolkit in SharePoint as soon as I can.
Peter Sullivan - SharePoint, TFS and .NET Learnings 