Try this, i read somewhere on a blog that when i was stuck in this issue that using ModaloPopup Extender in Update Panel causes issue if we do not use them in the right order, the code i am posting works fine for me, in my case also i am using ModalPopupExtender within update panel try this order of ModalPopupExtender with Update Panel, it will surely work:
<div class="popup">
<asp:Button ID="Button7" runat="server" Text="Button" Style="display: none;" />
<asp:Button ID="Button8" runat="server" Style="display: none;" />
<asp:ModalPopupExtender ID="ModalPopupUploadFiles" BehaviorID="ModalPopupUploadFiles" runat="server" CancelControlID="ImageButton1"
TargetControlID="Button7" PopupControlID="PanelUploadFiles" PopupDragHandleControlID="PopupHeader"
Drag="true" BackgroundCssClass="Overlay">
<Animations>
<OnShown>
<FadeIn Duration=".50" Fps="10" />
</OnShown>
</Animations>
</asp:ModalPopupExtender>
<!--unique css-->
<asp:Panel ID="PanelUploadFiles" runat="server" Style="display: none; overflow:scroll; width:750px; height:400px;" class="PopUpPanel">
<asp:Panel ID="panel1" runat="server" class="closeButton">
<asp:ImageButton ID="ImageButton1" runat="server" ImageUrl="~/images/cross.png"/>
</asp:Panel>
<asp:UpdatePanel ID="updtPanel" runat="server" UpdateMode="Conditional" ChildrenAsTriggers="True">
<ContentTemplate>
<br />
<br />
<table width="100%" border="0" cellspacing="0" cellpadding="0">
<tr>
<td align="left" valign="top">
<table width="100%" border="0" cellpadding="0" cellspacing="0" bgcolor="#ffffff">
<tr>
<td align="left" valign="top">
<table id="delgateContainer" width="90" border="0" align="left" cellpadding="0" cellspacing="3">
<tr align="center" valign="middle">
<td><asp:ImageButton ID="btnAddFiles" ClientIDMode="Static" ImageUrl="~/images/add.gif" runat="server"/></td>
<td><asp:ImageButton ID="btnStartUpload" ClientIDMode="Static" ImageUrl="~/images/start.gif" runat="server" OnClick="btnStartUpload_Click" /></td>
<td><asp:ImageButton ID="btnCancelUpload" ImageUrl="~/images/cancel.gif" runat="server" OnClick="btnCancelUpload_Click" /></td>
<td><asp:ImageButton ID="btnDeleteAllUploads" ClientIDMode="Static" ImageUrl="~/images/delete2.gif" runat="server" OnClick="btnDeleteAllUploads_Click" /></td>
<td align="left"><asp:CheckBox ID="chckBoxDeleteAll" ClientIDMode="Static" runat="server" /></td>
<td> </td>
</tr>
<tr align="center" valign="middle">
<td colspan="6"> </td>
</tr>
</table>
<p class="gr"><strong></strong></p><p> </p></td>
</tr>
<tr>
<td height="1" colspan="2" class="bgbl"></td>
</tr>
</table></td>
</tr>
<asp:GridView ID="gvUploadFiles" ClientIDMode="Static" onRowCommand="gvUploadFiles_Clicked" DataKeyNames="FileID,FileName,FileSize,FilePath,Status" AllowPaging="false" runat="server"
PagerStyle-HorizontalAlign="Center" AutoGenerateColumns="false" Width="90%"
CellPadding="0" BorderWidth="0" AlternatingRowStyle-BorderColor="LightGray" AlternatingRowStyle-BorderWidth="1" GridLines="None" ShowHeader="true" AlternatingRowStyle-BackColor="#f9f9f9" >
<Columns>
<asp:ImageField DataImageUrlField="ThumbanilPath" HeaderText="Thumbnail" ItemStyle-CssClass="alignmentCenter" ControlStyle-Width="100px" ControlStyle-Height="100px" runat="server"></asp:ImageField>
<asp:BoundField DataField="FileName" ItemStyle-CssClass="alignmentCenter" HeaderText="File Name" />
<asp:BoundField DataField="FileSize" ItemStyle-CssClass="alignmentCenter" HeaderText="File Size" />
<asp:TemplateField>
<ItemTemplate>
<asp:HiddenField ID="filePaths" Value="FilePath" runat="server"/>
</ItemTemplate>
</asp:TemplateField>
<asp:TemplateField>
<ItemTemplate>
<asp:ImageButton CommandName="doingUpload" ItemStyle-CssClass="alignmentRight" class="btnStart" CommandArgument='<%#Container.DisplayIndex%>' ID="imgBtnStart" ImageUrl="~/images/start2.gif" runat="server" /></ItemTemplate>
</asp:TemplateField>
<asp:TemplateField>
<ItemTemplate>
<asp:ImageButton ID="imgBtnCancel" ItemStyle-CssClass="alignmentLeft" CommandName="cancelUploading" CommandArgument='<%#Container.DisplayIndex%>' ImageUrl="~/images/cancel2.gif" runat="server" /></ItemTemplate>
</asp:TemplateField>
<asp:TemplateField>
<ItemTemplate>
<asp:ImageButton CommandName="deleteFile" ItemStyle-CssClass="alignmentRight" Visible="false" id="imgBtnDelete" CommandArgument='<%#Container.DisplayIndex%>' runat="server" ImageUrl="~/images/delete2.gif"></asp:ImageButton>
</ItemTemplate>
</asp:TemplateField>
<asp:TemplateField>
<ItemTemplate>
<asp:CheckBox Visible="false" ID="chckBoxDelete" ItemStyle-CssClass="alignmentLeft" class="deleteChkBox" ClientIDMode="Static" runat="server" />
</ItemTemplate>
</asp:TemplateField>
<asp:TemplateField>
<ItemTemplate>
<asp:HiddenField ID="uploadStatus" Value="Status" runat="server" />
</ItemTemplate>
</asp:TemplateField>
<asp:BoundField DataField="FileID" Visible="false" />
</Columns>
</asp:GridView>
<div id="UploadControl1">
<asp:Button ID="Button17" runat="server" Style="display: none;" />
<asp:ModalPopupExtender ID="ModalPopupUploadControl" BehaviorID="ModalPopupUploadControl" runat="server" CancelControlID="ImageButton4"
TargetControlID="btnAddFiles" PopupControlID="Panel5" PopupDragHandleControlID="PopupHeader"
Drag="true" BackgroundCssClass="Overlay">
<Animations>
<OnShown>
<FadeIn Duration=".50" Fps="10" />
</OnShown>
</Animations>
</asp:ModalPopupExtender>
<asp:Panel ID="Panel5" runat="server" class="PopUpPanel"
style="display: none;overflow:hidden; height:100px; width:300px;"><!---unique css-->
<asp:Panel ID="panel7" runat="server" class="closeButton">
<asp:ImageButton ID="ImageButton4" runat="server" ImageUrl="~/images/cross.png"
/>
</asp:Panel>
<div id="uploadControl" class="all">
<div></div>
<asp:FileUpload ID="uploadingFiles" ClientIDMode="Static" runat="server" class="all" style="display:none;" /><br /><br />
<asp:ImageButton ID="imgBtnAddFile" ClientIDMode="Static" runat="server" ImageUrl="~/images/addToGrid.jpg" OnClick="btnAddToList_Click" style="Display:none;" class="all"/>
</div>
<div>
</div>
</asp:Panel>
</div>
</ContentTemplate>
<Triggers>
<asp:PostBackTrigger ControlID="imgBtnAddFile" />
<asp:AsyncPostBackTrigger ControlID="gvUploadFiles" EventName="RowCommand" />
</Triggers>
<Triggers>
<asp:AsyncPostBackTrigger ControlID="gvUploadFiles" EventName="RowCommand" />
</Triggers>
</asp:UpdatePanel>
<asp:UpdateProgress ID="testing" DisplayAfter="0" AssociatedUpdatePanelID="updtPanel" runat="server">
<ProgressTemplate>
<div style=" left:0px; top:0px; position:fixed; width:100%; height:100%;
background-color:White; filter:alpha(opacity=90);opacity:0.9;">
<asp:Image ID="Image2" style="margin-left:500px; margin-top:300px;" ImageUrl="~/images/ajax-loader.gif" runat="server" />
</div>
</ProgressTemplate>
</asp:UpdateProgress>
<tr>
<td align="right"><img src="../images/m7.gif" width="115" height="26" /></td>
</tr>
</table>
</asp:Panel>
</div>