Does it run fine on your local box before uploading to the server? As the error message says, make sure its in your web.config file.
Also, based on this thread, it appears you need to register it in the system.webServer section as well:
<system.webServer>
<validation validateIntegratedModeConfiguration="false" />
<modules>
<add name="ScriptModule" preCondition="integratedMode" type="System.Web.Handlers.ScriptModule, System.Web.Extensions, Version=1.0.61025.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
<add name="RadUploadModule" type="Telerik.Web.UI.RadUploadHttpModule, Telerik.Web.UI" preCondition="managedHandler" />
</modules>
<handlers>
<remove name="WebServiceHandlerFactory-Integrated" />
<add name="ScriptHandlerFactory" verb="*" path="*.asmx" preCondition="integratedMode" type="System.Web.Script.Services.ScriptHandlerFactory, System.Web.Extensions, Version=1.0.61025.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
<add name="ScriptHandlerFactoryAppServices" verb="*" path="*_AppService.axd" preCondition="integratedMode" type="System.Web.Script.Services.ScriptHandlerFactory, System.Web.Extensions, Version=1.0.61025.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
<add name="ScriptResource" preCondition="integratedMode" verb="GET,HEAD" path="ScriptResource.axd" type="System.Web.Handlers.ScriptResourceHandler, System.Web.Extensions, Version=1.0.61025.0, Culture=neutral, PublicKeyToken=31bf3856ad364e35" />
<add name="Telerik_Web_UI_WebResource_axd" verb="*" preCondition="integratedMode" path="Telerik.Web.UI.WebResource.axd" type="Telerik.Web.UI.WebResource" />
<add name="Telerik.RadUploadProgressHandler.ashx_*" path="Telerik.RadUploadProgressHandler.ashx" verb="*" type="Telerik.Web.UI.Upload.RadUploadProgressHandler, Telerik.Web.UI" preCondition="integratedMode,runtimeVersionv2.0" />
</handlers>
<urlCompression doDynamicCompression="false" />
</system.webServer>
Note that I've never used this control, so there may be more that needs to be done.