My controls do not use viewstate to persist anything other than the design-time properties.  The actual data for the treeview is persisted via the clientapi's __dnnvariable hidden field.  The clientapi documentation discusses how this works if your interested.  The error you are getting happens when your tree does not contain unique ids. 

I am curious why you want the tree in an update panel to begin with.  The tree already supports Populate On Demand in a much more efficient manner than what the UpdatePanel provides.

the node click can trigger a javascript function, which I believe you can write some small script to trigger the update panel.