If you are using Telerik controls and you decide that it would be nice to have jQuery making an ajax call to your WCF service, make sure that you remove all instances of RadCompression http module from web.config (as described here) file or weird things will start to happen.

In my case, WCF service should return data in json format. However, it only returned only a small portion of result (about 30 characters), which resulted in jQuery ajax call failure as returned data was not json format any more. After entire day of obsessive googling, I came upon this article which led to the final solution: removing dang RadCompression http module form web.config.