Thank you for your quick reply.
When you say "Has anyone been able to make a Silverlight 2.0 application work with DotNetNuke", is your DotNetNuke installation built under .net 2.0 or .net 3.5? (I'm guessing your DNN installation is built under .net 3.5, but I'm just trying to clarify)
Like I mentioned in my original post, I can get silverlite 2.0 to work (my custom SL module and your "Hello, World" Module) on my DNN site, but I just have to build DNN in VS08 under the .net 3.5 framework. When I try to build the DNN installation under .net 2.0, I receive the System.Web.Extensions version incompatibality error mentioned in my 1st post.
Thank you for your kind attention.