I ran into this before... there was some quirk regarding where you placed your Extenders in Relation to their Panels. I can't remember specifically which version ended up working, but you could play around with the following combinations.
e.g.
<!-- 2 Seperate Panels & Extenders -->
<ajt:ModalPopupExtender ID="mpe1" TargetControlID="pnl1" />
<asp:Panel ID="pnl1">
<asp:Button ID="btn1" /> <!-- launches pnl2 popup -->
</asp:Panel>
<ajt:ModalPopupExtender ID="mpe2" TargetControlID="pnl2" />
<asp:Panel ID="pnl2">
Content
</asp:Panel>
Vs.
<!-- 2 Nested Panels & But separate Extenders -->
<ajt:ModalPopupExtender ID="mpe1" TargetControlID="pnl1" />
<asp:Panel ID="pnl1">
<asp:Button ID="btn1" /> <!-- launches pnl2 popup -->
<asp:Panel ID="pnl2">
Content
</asp:Panel>
</asp:Panel>
<ajt:ModalPopupExtender ID="mpe2" TargetControlID="pnl2" />
Vs.
<!-- 2 Fully Nested Panels & Extenders -->
<ajt:ModalPopupExtender ID="mpe1" TargetControlID="pnl1" />
<asp:Panel ID="pnl1">
<asp:Button ID="btn1" /> <!-- launches pnl2 popup -->
<ajt:ModalPopupExtender ID="mpe2" TargetControlID="pnl2" />
<asp:Panel ID="pnl2">
Content
</asp:Panel>
</asp:Panel>