Hi Daryl and Mike,
With the Service Pack release we have downgraded all starter kits except the Corporate one to support SQL Server 2005. We have experienced some issues with the downgrade of the Corporate website that we are currently resolving, that is why this is the only starter kit that has its database in the SQL Server 2008 R2 version.
Mike you have attached the version of your SQL Server Management Studio and not the version of the actual server. You can have your SQL Server Management Studio upgraded to the SQL Server 2008 R2, but your actual database engine could be still running a lower version as in this case. You have to verify the instance of the actual engine like this:
Let me know if you still experience some issues with it.
the Telerik team