I thought I would post a strange occurrance I have just solved. We were having trouble understanding why our Update Panel wasn't rendering anything in the VWD 2008 designer for .NET 3.5.
We had a play about and found that because the update panel was at the top of the control's (.ascx) content it wasn't rendering. The only thing that was above was a <link> tag for a stylesheet specific to a control on that page.
The simplest solution was to put a bit of text between the link tag and the update panel.
Everything then started to show just fine. FYI it was showing fine in the browser anyway. It was more an inconvenience than anything else.