Currently the RadStylesheetManager renders embedded styles below user defined styles. In terms user defined cascades are overridden and developers need to use stronger selectors. Adding the ability to control where the embedded stylesheets are rendered will solve this and other issues.
Instead of an exception the file should be served uncombined. To avoid this, you can simply remove the StyleSheetReference entries from the StyleSheetManager if you do not intend to have them combined. Having them there will not bing a performance benefit if they are not combined. The other option is to add the appropriate folders in the web.config: <appSettings> <add key="Telerik.Web.UI.StyleSheetFolders" value="~/folder1; ~/folder2" />
Based on customer feedback: At times customers need both CDN enabled and combined styles. Since it's impractical to have all possible combinations ready on the CDN, a per skin combination sounds more reasonable. I.e. Default.all.css or something similar. That's for CDN. When running StyleSheetManager locally, again bundling (or defining groups) is a nice addition, as it allows a more specific manner. Of course such explicit feature, should and must negate the effect of counting selectors and splitting files.
Based on customer feedback: The generated URLs for stylesheets are not human readable. It would be nice if the names are nice and human readable e.g. like with CDN enabled true.