I've just had an article published on DotNetSlackers about what happens behind the UpdatePanel.

"The UpdatePanel is one of the coolest features of Microsoft's ASP.NET AJAX. It magically lets you enhance your web sites with AJAX goodness, with very little cost to you as a developer. If you are like me though, you'll be feeling just a little bit uncomfortable simply dragging the UpdatePanel onto your web form, and then letting it do its stuff. We want to understand what it is doing on our behalf.</p>

In this article I'll walk through what happens in the browser when an UpdatePanel updates. You'll see what events are fired, what intervention points there are where you can intercept the action, and generally get a feel for the sequence of events."</i>

More at http://dotnetslackers.com/articles/atlas/The_UpdatePanel_opened_what_happens_behind_the_scenes.aspx