I AM attempting to "add" the tool kit to my Toolbox but I'm having some problems.

Here's what I did.

1) added a tab to the Toolbox -- named "Ajax ToolKit".
2) downloaded a copy of the dll and put it here .. C:\Program Files\Microsoft Visual Studio 8\Common7\IDE\
3) right clicked in the area and selected "choose items..."
4) browsed to the AjaxControlToolkit.dll located in step 2.
5) boom ERROR  -- see attached alert box ...

weird.  any ideas to fix it would be appreciated.

Do you have AJAX RC1 install?

you need asp.net AJAX RC1 dll in GAC

1) Check c:\windows\assembly\Gac_msil for the directories System.Web.Extensions and System.Web.Extensions.Design

2) Install under an administrator account; you may not have write permissions in c:\windows\assembly as a non-administrator.