Hi,
I too have recently downloaded the AJAX Toolkit but I did manage to get it working ok. I too only have the Express versions of Visual Studio and so it SHOULD work ok. Here's what I did.Hope it works for you too.
1) Follow the instructions on ASP.NET AJAX video 1 in order to download the actual AJAX framework.
2) Follow the instructions on ASP.NET AJAX video 2 to download the AJAX toolkit. Once the ZIP is downloaded, run the install routine as described in the video. The guy on the video install the toolkit into a new directory called C:\Program Files\Microsoft ASP.NET\ASP.NET 2.0 AJAX Extensions\AJAX Control Toolkit and the whole toolkit gets extracted into there from the ZIP.
3) Then he starts on about the VSI template which I don't think applies to us cheapskate Express users so I skipped that bit.
4) To make a website AJAX-able, I created a blank template which I then use to make new websites from. This is how.
a) Choose FILE...NEW... ASP.NET Website from the menu and call it what you want. I called mine AjaxToolkitWebsite.
b) (This is on Video 2 at 7mins 40 secs)
On the Toolbox pane, you SHOULD see the group saying AJAX EXTENSIONS but we need to add the AJAX TOOLBOX group as well but we have to do this manually. Right Click on the General Tab and select Add Tab. Name it AJAX TOOLBOX
Then right click inside the new group and select Choose Items. A Dialogue Box opens. Click the Browse button and navigate to where you extracted the Toolbox ZIP file to. Go to the Binaries folder and select the AjaxControlToolkit.dll file. After to you click OK on the resulting dialogue box you see the Toolbox group is populated with the AJAX controls.
c) THIS IS THE BIT THAT APPLIES JUST TO EXPRESS..... You need to add a reference to the AjaxToolkit.dll
From the menu, choose Website...Add Reference. In the dialogue box, choose the Browse tab and navigate to C:\Program Files\Microsoft ASP.NET\ASP.NET 2.0 AJAX Extensions\v1.0.61025 where you will find the AjaxControlToolkit.dll. Select this file and you will see a BIN folder appear in you Solutions Explorer pane with this DLL.
d) Now save this website as a Template by choosing File... Export Template. This will create a template for you to use in future thus avoiding to have to do all the above ever again!!!!
5) Test all works ok by Choosing File New Website and hopefully you'll see the Template you just created in the MyTemplates section. That's It!
Hope that works for you