The issue is due to failing recalculation logic of the iframe content area. 

To resolve the issue you can use a RadEditor control with ContentAreaMode="Div" to render the content area as a DIV element, instead iframe.  

If the iframe mode is needed, you can use the following workaround to fix the content cell and the iframe appearance. 

<telerik:RadEditor ID="RadEditor1" runat="server" height="50px" OnClientLoad="OnClientLoad">
	<Tools>
		<telerik:EditorToolGroup>
			<telerik:EditorTool Name="Bold" />
			<telerik:EditorTool Name="Italic" />
			<telerik:EditorTool Name="Underline" />
		</telerik:EditorToolGroup>
	</Tools>
</telerik:RadEditor>

<script type="text/javascript">
	function OnClientLoad(editor, args) {
		setTimeout(function () {
			var editorIframe = editor.get_contentAreaElement(),
				originalIframeHeight = editorIframe.offsetHeight,
				contentCell = editorIframe.parentNode,
				cellSize = contentCell.offsetHeight,
				isCellSmaller = (originalIframeHeight - cellSize) > 2;
		
			if (isCellSmaller) {
				contentCell.style.height = originalIframeHeight + "px";
			}
		}, 0);
	}
</script>