Navigation framework app won't start in XP/IE8 Silverlight

Question

I was writing a small app and as it became bigger, I decided to move it to use multiple XAML pages and navigation framework; after the move, the app no longer runs in IE and gives the exception below when starting. It runs fine on Chrome on the same machine, and standalone if installed from Chrome.

I've got IE8 on XP SP2; there are few posts on the net about this problem and no answers but one post does mention XP, I wonder if it's problem local to XP... Rebuild/clean doesn't seem to help.

Exception stack:

System.UnauthorizedAccessException: Access is denied. (Exception from HRESULT: 0x80070005 (E_ACCESSDENIED))
   at MS.Internal.XcpImports.CheckHResult(UInt32 hr)
   at MS.Internal.XcpImports.Host_GetNavigationState()
   at System.Windows.Interop.SilverlightHost.OnNavigationStateChangedEventHandlerAdded()
   at System.Windows.Interop.SilverlightHost.add_NavigationStateChanged(EventHandler`1 value)
   at System.Windows.Navigation.Journal.InitializeNavigationState()
   at System.Windows.Navigation.Journal..ctor(Boolean useNavigationState)
   at System.Windows.Navigation.NavigationService.InitializeJournal()
   at System.Windows.Controls.Frame.Frame_Loaded(Object sender, RoutedEventArgs e)
   at System.Windows.CoreInvokeHandler.InvokeEventHandler(Int32 typeIndex, Delegate handlerDelegate, Object sender, Object args)
   at MS.Internal.JoltHelper.FireEvent(IntPtr unmanagedObj, IntPtr unmanagedObjArgs, Int32 argsTypeIndex, String eventName)