I just wanted to highlight a few really cool Avalon applications that have already been written (or at least are at a stage where you can download the bits and play with them):
Electric Rain Zam3D. A 3D modelling tool that can be used to export XAML - several of our own 3D demos have been built with this tool. It makes it so easy to create a mesh: you can extrude surfaces, add textures, create timelines - it's very sophisticated. You can see a screenshot here and download the application itself here.
Mobiform Aurora. A visual designer for building Avalon applications. This application is a great way to get a headstart on building your own Avalon app, and they're already a long way towards completion. I really like what they've done, and the speed they ported their designer to the latest Beta 1 RC release was phenomenal. You can see a screenshot here and download the application itself here.
Avalon Chess. A great example of an Avalon application - with 2D and 3D versions available. This was done by one guy, who has also built WinForms and mobile versions of the same application. The Avalon version is the only one with 3D support, though. This is also freely available for download from the link above.