Since Silverlight 2 is lacking 3D support or distort transforms or bitmap manipulation, you're pretty much limited to 2D sprite games, but you could make a good casual game, or even a physics-based game using the Farseer Physics Engine or something similar. The LineRider game was ported from Flash to Silverlight for performance reasons, since running a .Net framework inside the browser can give you performance gains over Flash. So if your game is computationally intensive, it might be the right platform for you now.
With some 3D support, hardware acceleration, and bitmap manipulation coming in Silverlight 3, I think it will then be a very compelling web game platform.
Even without these features, Innoveware has done a very impressive port of Quake to Silverlight, you can see it here:
http://www.innoveware.com/quakelight.html
The author uses some hacks to do scanline rasterization to a bitmap for his display, this will get a lot easier in Silverlight 3.