For hosting silverlight on framework 3.5 (based on 2.0), you have to do the following:

- Be sure you base your silverlight application on framework 3.5
- Within IIS go to the website, choose for framework 2.0
- Add on the Tab HTTP Headers the following mime types:

Extension : .xap Mime Type: application/x-silverlight-app
Extension: .xaml Mime Type: application/xaml+xml
Extension: .xbap Mime Type: application/x-ms-xbap

You can also do this on server level, but on application level it is okay.