I'm guessing you guys are using ASP.NET Forms Auth - and the login cookie is expiring.
From what I can tell, ASP.NET Ajax throws an "Unknown Error" when it makes a XmlHttp call and gets a response which isn't what it was expecting.
In the case of a session expiry, instead of the page fragment it was expecting it suddenly gets back a "You need to login" page, or a 500 error, or a 404.
It doesn't know what to do, and dies with an "Unknown Error".
I'm going to try out that ErrorTemplate example pasted in one of the replies above and see if that does it for me.