The section of the web.config that needs to be added to rebind reference to System.Web.Extensions (ASP.NET AJAX) 1.0 to the version that comes with .NET 3.5. <runtime> element is at the same level as <system.web> and <system.webServer>

web.config Binding Redirect for System.Web.Extesions.xml

  <runtime>
    <assemblyBinding xmlns="urn:schemas-microsoft-com:asm.v1">
      <probing privatePath="bin;bin\HttpModules;bin\Providers;bin\Modules;bin\Support;" />
      <dependentAssembly xmlns="urn:schemas-microsoft-com:asm.v1">
        <assemblyIdentity name="System.Web.Extensions" publicKeyToken="31bf3856ad364e35" />
        <bindingRedirect oldVersion="1.0.0.0-1.1.0.0" newVersion="3.5.0.0" />
      </dependentAssembly>
      <dependentAssembly xmlns="urn:schemas-microsoft-com:asm.v1">
        <assemblyIdentity name="System.Web.Extensions.Design" publicKeyToken="31bf3856ad364e35" />
        <bindingRedirect oldVersion="1.0.0.0-1.1.0.0" newVersion="3.5.0.0" />
      </dependentAssembly>
    </assemblyBinding>
  </runtime>