Update Panels not working with IIS7.. but they'll work on the production servers...
We had a case awhile ago where all our update panels (<asp:UpdatePanel .. />) stopped working. It took me awhile to figure out what was going wrong with it.
On the ASP.NET forums there were many people talking about XHTML conformance with AJAX. Some people were using <xhtmlConformance mode="Legacy"/> in their web.config files, and this was stopping all UpdatePanels from working properly.
Once seeing that I decided to check our web.config file, which didn't have anything as far as xhtmlConformance in it. I decided to throw in: <xhtmlConformance mode="Transitional"/> into the web.config.
Once that was in, all the Update Panels started working properly. ASP.NET AJAX requires web pages to be XHTML compatible (not HTML 4.0). In fact, not having the mode=Transitional in the web.config will stop the scriptManager from even getting rendered in the page, and every AJAX hit would act like a regular postback.