So I got an environment up an running to do some work with Silverlight Beta 2 and also SP1 for VS 2008. I decided to do all of this on a VMWare image with Windows 2008. Man was this a headache. The extra super stringent security on Windows 2008 made this an absolute pain. Just so others don’t have to go through the same thing I documented what you have to do to get things to work.
1. Turn off IE Enhanced Security (ESC) for Administrators (this assumes your are developing as an admin). This will enable you to open websites without getting asked if it’s ok. To do this go to Administrative Tools and open Server Manager. Click the Configure IE ESC link as shown below in red. This opens the dialog that allows you to turn off ESC for administrators and for users. I just turned it off for administrators on my box since that is what I am developing as.
2. Now that you have that done run you application in debug mode (which won’t show the Silverlight control yet) and add “http://localhost” to your trusted sites. I did this so that all of the other websites I hit will still have the standard “bullet proof” security. To get to the security dialog shown double click the Internet icon. Then select the trusted sites icon and finally add “http://localhost” to the trusted sites.
Once I did this I was finally able to rock and roll with Silverlight. If I remember right you will get a little warning just below the toolbar that ESC is disabled. If you select it you can turn this warning off.
I hope this helps.