I can't get references to work in Web Application Projects in Orcas. They seem to work fine under a regular Web Site Project though. Bug? I sure hope so...
To check this out for yourself, create a Web Site and Web Application Project. Make sure you manually add a reference to System.Web.Extensions for the WAP version, 'cause unlike WSP they don't include the reference by default yet (also a bug IMHO). Next, put a Test.js file in both flavors of projects containing just this:
/// <reference name="MicrosoftAjax.debug.js"/>
Then, go to the next line and type "$g". If it doesn't auto-complete and give you "$get" in the completion list, it's not working. Like I said, for me, it seems to work in WSPs, but not WAPs. *shrug*