In my design view (Visual Studio 2008 Professional with SP-1) and with a width set to 100% the GridView has width equal to the Titles lenght (about 200px).
With the same setting, the Update Panel has a width of all the Free Space in window in the monitor (100%).
If i change the GridView's width to 300px, then the GridView goes to 300px and the UpdatePanel has the same behavior
(has a width of all the Free Space in window in the monitor).
I think this is a design "bug" in VWD 2008. Search for a service pack or update for your IDE. But that not a functional error.
You can use it even if has that error and see the results in browser (believe me, it's better in browser. In browser you can see the real view of your design, not in Design view)...
Please, mark this post as "Answer" if it helped you solve your problem.
MinimalTech.