I recently ran into an issue with using Silverlight 2 on a production web server. Basically the Silverlight 2 application worked great on my dev machine, but when hit from the production web server I found the page has the Silverlight control, but just a white canvas, nothing else.
A few options for fixing this issue:
1. For IIS6, simply add the .XAP filetype.
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!
Hope that helps!