We too were having this same problem. I have finally found a workaround. The issue is caused when the Ok and/or Cancel Buttons of the ModalPopupExtender are defined within the UpdatePanel of the Panel that is popped up. To fix the problem with the code provided, do the following:
Change this line:
CancelControlID="CancelBut
ton" />
To:
This issue seems to stem from the fact that the ModalPopupExtender is not expecting to have the Ok and Cancel controls in the update panel. Normally, you cannot define and Code Behind for these Buttons click events. So when you Click on these buttons, and they post back to the server, something is broken between the ModalPopupExtender and the buttons. By defining dummy buttons to take their place, it will make the web page stop throwing the javascript exception. Even though the buttons are invisible, and do not do anything.
from:
http://forums.asp.net/t/1055781.aspx