Solution to Silverlight not working under Orcas VPC
Have you tried out Microsoft Silverlight under the Visual Studio 2008 (code-named Orcas) Beta 1 Virtual PC image yet? I have an by default it doesn't work as you would expect. For those not familiar with the Windows Server 2003 security default lock-down policies it might be a little too much for you so I thought I'd explain how to make it work.
So you start off and create a new Silverlight project and run it. And you get presented with an Internet Explorer Enhanced Security Configuration dialog box saying that the site about:internet has been blocked. If you don't then you have most likely unchecked the box Continue to prompt when Web site content is blocked.
Note that the Internet Explorer Enhanced Security Configuration feature was added to protect server computers from stupid users. Yes, I'm talking about users that don't think before they click and unfortunately that includes most users out there. So if you are one of those users, please stop reading now and go back to playing Solitaire or Minesweeper.
To solve the problem for good you should open Control Panel and then Add or Remove Programs and select Add/Remove Windows Components. You can now either deselect Internet Explorer Enhanced Security Configuration entirely or highlight it and select Details. As you are running as Administrator by default then deselect For administrator groups and click OK followed by Next to remove the annoying enhanced security policy from the administrators group.
Now try run your Silverlight project again and it should work as expected.