You can use Server Templates to display HTML Encoded content:

  <telerik:RadAutoCompleteBox runat="server" ID="auto" DataTextField="Text" DataValueField="Value">
            <DropDownItemTemplate>
                 <%# System.Web.HttpUtility.HtmlEncode(DataBinder.Eval(Container.DataItem, "Text"))%>
            </DropDownItemTemplate>
        </telerik:RadAutoCompleteBox>  

public partial class DebugPage : System.Web.UI.Page
{
    protected void Page_Load(object sender, EventArgs e)
    {
        List<Item> items = new List<Item>();

        items.Add(new Item() { Value = "1", Text = "pe1@sad.com" });
        items.Add(new Item() { Value = "2", Text = "<pe3@sad.com>" });

        auto.DataSource = items;
    }
}

public class Item
{
    public string Value { get; set; }
    public string Text { get; set; }
}