Select the
Image1 control again and in the Properties Window, set the SpriteExtender1 properties as follows:

... so that your SpriteExtender tag in HTML View looks like so:
<cc1:SpriteExtender ID="SpriteExtender1" runat="server" GameWindowControlId="GameWindowExtender1" TargetControlID="Image1" FrameCount="8" FramesPerRow="8" FrameWidth="35" FrameHeight="35" ImageUrl="images/asteroid.gif"></cc1:SpriteExtender>