I just updated the Ajaxify MOSS codeplex release to include the needed web.config entries for using the .Net 3.5 version of System.Web.Extensions.

There is, however, one manual step you still have to perform to the web.config files in order to get this to work right. You still need to add the dependentAssembly elements to the configuration/runtime/assemblyBinding element, as shown below:
 

I tried a whole bunch of different ways to get the xpath in the SPWebConfigModification object to try and get it to work, but I think the problem is that it's either too ambiguous because there's no unique identifier available on the dependentAssembly element, or the namespace on the assemblyBinding element is causing problems.

All the other entries are being applied correctly, though.  Also, I try and help out a little by outputting the nodes in the stsadm command output after the nodes are applied :) - see:

Just mark and copy the lines from there, and you're halfway there.

The command names are on the releases tab in the codeplex project.  If you're upgrading from the ASP.Net AJAX 1.0 framework, make sure you uninstall the config mods first, before you add the 3.5 config mods.

Final note: I hope to be adding the needed lines for SilverLight pretty soon.

Read the complete post at http://feeds.feedburner.com/~r/RichFinn/~3/315730554/AjaxifyMOSSNowFeaturingNet35.aspx