How to setup MOSS 2007 to use ASP.NET 3.5 with AJAX Extensions

Here are two links that i have found helpful
This is a great explination of what needs to change:
The only thing to note is that the final section on the system.web.extensions is that you may already have a copy of this in your config. 
So I would recommend taking the sample web.config from the project below as a starting place (with the artcile above explaining what is going on)