Brad Abrams, a popular keynote speaker at AJAXWorld Conference & Expo in 2007, recently ran into an issue with using Silverlight 2 on a production web server. Basically the Silverlight 2 application worked great on his dev machine, but when hit from the production web server he found "the page has the Silverlight control, but just a white canvas, nothing else." He recently blogged about how to fix it.
The problem, Abrama explained, was that the web server was not set up to handle the .xap file extension that Silverlight 2 uses to encapsulate the code for the application.
Here were the options he came up with for fixing this issue:
2. For II7, this should just work as IIS7 enables them all by default.
3. Other web services such as Apache, lighttpd, etc. Just make sure the server is configured to allow access to .xaml, .wmv and .xap files and you should be all set
4. Sometimes you can't easily go in and change the setting on the server. So the solution I actually used was none of these. I just renamed the .XAP file to .ZIP, changed the reference in my applications .Xaml file and it ran fine."
.NET in the Browser: Silverlight RIA
- by Lawrence Moroney, Microsoft

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