Luckily Aaron Schnieder has already solved this issue.
Not sure why they haven't kicked out a new version of the tool kit onto Codeplex yet, but they haven't, so you must apply this change yourself.
So after I finished migrating my pages and my web service into the web site, I went to try to run my page with my autocomplete extender, and viola - WTF? Nothing happened. Crap.
Dork around with the pages. Add break points. Google a lot. Did I recently install any VS2008 service packs? Possibly. Uninstall them. Still nothing. Google some more. Add a new web site to my solution, with code right from the AJAXToolKit (converted to VB.NET of course). Still nothing. Two more hours of trial and error. Call it a night.
Log on this morning. Dig in again. More Googling. Hey, what's that? In the new Web Service code behind file I added?
' <System.Web.Script.Services.ScriptService()> _
How come that line is commented out? By default? Yikes.
Remove the comment. Try the app again.
Presto. Back in business.