This one had me stumped. A large web app I'm working on for a client has some cases where some AJAX would be very handy. I wanted to take this opportunity to learn about ASP.NETs AJAX release as it looked real easy to work with. I watched the videos and followed the instructions and created a test app and all worked well. I then tried to take what I had learned and incorporate it into my existing app. The Partial Rendering did now work and the SupportsPartialRendering continually came back as false. I had checked to make sure that all references were in place and the web.config file was updated with the required <httpHandlers>. Well interestingly enough, I missed a very important part of the web.config.
<xhtmlConformance mode="Legacy" />
With the xhtmlConformance mode set to Legacy, AJAX will not work on your pages. Scott Guthrie has a good explanation with all the gory details. In a nutshell, apps that were upgraded from 2003 to 2005 (which mine was) will have this setting in place. Removing that and automagically, my newly AJAXed pages now work as designed!!