I have spent a few hours trying to figure this out and finally got this to work. When I first tried to add the toolkit DLL to the toolbar to get the controls added I got the error below.

I tried to google (I mean Live Search ) to find the result and could not find any real solutions so now I started hacking.

I tried to add a reference to the file AjaxControlToolkit.dll from the C:\Program Files\Microsoft ASP.NET\ASP.NET Ajax Control Toolkit\SampleWebSite\Bin directory (this is where I installed my toolkit). Still I had no luck. I then noticed that the System.Web.Extension dll was not in my references (this seems to be the default in Orcas right now) so I went to add it. I was now faced with a decision on what version of this dll to use. I went ahead and chose the newest version 2.0.0.0 and went for it. I was then able to add the control toolkit to the toolbox.

There are a few things to keep in mind as you work with the toolkit.

1. Sometimes the old version of the System.Web.Extensions dll will appear in the assemblies section of your web.config. If so just remove it since you would have two entries in this case since the 2.0 version is added automatically by the Web template in Orcas.
2. Once this is done the toolbox will have the controls for each project you create but you will still have to references the DLLs in your project.