How to: Fix “Directory ‘C:\Inetpub\wwwroot\wss\VirtualDirectories\80\_catalogs\masterpage’ does not exist.”

When developing with the AJAX components of .Net it is often wise to use PageMethods to increase performance of your page.

Unfortunately when you enable it in C# like

SharePoint will greet you with the error

To fix this issue you have to install the following hotfix