As far as I know they removed the designer for silverlight 3 as we cannot edit in the desginer.
This has been removed by design. To quote Tim Heuer:
Where did my design view go?! You may notice right away that the VS tools no longer have the preview mode for your XAML in Silverlight projects. This is by design. We heard some pretty vocal feedback that the preview was usually turned off for most development because it was not turning out to be helpful as the applications got more complex. The team decided put the resource investment into creating a great editable design surface in VS2010 instead and not delay the release of Silverlight 3.
Blend still works if you want a more visual designer, and I believe that the beta build of VS2010 has the design view built into it.
It's not totally remove though - there's a really small horizontal splitter just about the XAML tab at the bottom of the page that you can use to see the designer. Not sure about your error though. To troubleshoot designer errors try blend as other suggested and look at the call stack. Also remove your UI elements from the Xaml piece by piece and rebuild to see if you can isolate the cause of the problem. Also look at your ctor and Loaded event handler to see if your code is causing the problem. If you're really stuck try attaching another instance of VS to your existing visual studio, then make the error happen and see if you can debug it. This stuff is no fun!
As Raumornie states.
I gave up on the VS2008 designer a long time ago. It's slow, often requires refreshes, or just plain freaks out when the XAML gets too complicated. Good move on Microsoft's part, though I believe a more robust viewer is in the works for VS2010.
In the meanwhile, there's Expression Blend...