I figured out why I'm seeing the error message. As I mentioned in the inital post, the folder containing the Ajax Uploader files was not in the root of the app but one folder deeper. When I moved the folder up into the application root, I stopped getting the error.

 

You should consider putting in the instructions that the folder needs to be in the application root or add the ability to specify where it's located in the web.config.

 

However, I still can't get the muti file selection to work. When I mouseover the upload button it says that SilverLight failed to load. If I force it to use Flash, it says that failed. I know I have both SilverLight and Flash (both latest versions) installed. The demos on your site work just fine.