I downlaoded the sample code accompanying the "Cascading Drop Down Control to Access a Database" AJAX Toolkit video, and added the datasets from the sample code to my application running in VS2008 and AJAX 3.5. I think the sample code is in a prior version of AJAX.
When I ran my project I used to get Method Error 500 and after 2 days of searching the web could not get a solution.
Finally by chance I recreated the datasets fresh in my app using the wizard as shown in the video and the error dissapeared and the cascading drop down worked beautifully.
I hope this post would help anyone who is in the same situation I was.
Irfan Nizar