Yes, we are aware of this issue. As you described, it appears when your project is set as a virtual directory in IIS 7 with integrated pipeline mode and requesting an URL with no page specified
It is already fixed for the upcoming release.
Please double-check that your site is working in classic mode. You should not get the message that the IIS7 Integrated Pipeline Mode is selected
if the pipeline mode is classic, and also you should not get the error.
Another approach to get around this problem is to set the web application as a Web Site in IIS.
the Telerik team
Check out Telerik Trainer
, the state of the art learning tool for Telerik products.