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What is the difference between Silverlight 1.0 and 2?
Silverlight 1 is pure AJAX and Javascript based. All the code has to be written in Javascript and XAML.

Silverlight 2 supports managed code. When Silverlight 2 runtime is installed, it installs a limited version of .NET runtime on the client machine. This allows .NET programmers to write managed code to be executed on the client PC and provide a better user experience to the users. Of course, there is security and restrictions built in to it so that the code has limited access to the client computer.

In Silverlight 1.0, the XAML code was referenced directly by the Silverlight object embedded in the browser. In Silverlight 2, however, the embedded object references an XAP package that contains the XAP file, assemblies, and resources necessary to run the Silverlight application.