I managed to get this working - I am not entirely sure how but I started by erasing the existing references installed folders here:
C:\Documents and Settings\Rod\Local Settings\Application Data\Microsoft\Silverlight\OutOfBrowser\index
It seems a little flaky (at one point the install worked but the app just showed a white screen) - but start by looking at the file in the index folder above to see if your xap is being copied to the correct folder.
I will leave this up as it has some good clues on how to solve this.
Rodney
2010-09-13 05:48:38