<p>I am using VS 2008 with a very simple UpdatePanel scenario. 
But i cannot get UpdatePanel to work and cant seem to find out why</p>

<p>I have in fact reverted to a very simple example to validate it is not my code:
<a href="http://ajax.net-tutorials.com/controls/updatepanel-control/" rel="nofollow noreferrer">http://ajax.net-tutorials.com/controls/updatepanel-control/</a></p>

<p>In this example I click on either button and both text links update.</p>

<p>I dont get any errors, the page just behaves like a normal ASPX page.
What things do i need to check. I've been googling this for an hour and not found what I need.</p>

<p><strong>Edit:</strong> Works in Visual Studio web server but not in IIS</p>

If it's working locally, but not when deployed to a remote server, that usually indicates that you're using ASP.NET 2.0 and the ASP.NET AJAX extensions aren't installed on the remote server.
If it's a server you have administrative control over, you can download the installer here:
http://www.microsoft.com/downloads/details.aspx?FamilyID=ca9d90fa-e8c9-42e3-aa19-08e2c027f5d6&displaylang=en
If it's a web host, tell them to get their act together.