I am having the exact issue defined in the article in the Resource Center here.
When I paste the URL of my Resource in the Browse function in the Silverlight Viewer I get the error message "Connection Error: Unable to connect to (URL)".
I went through the steps numerated in the above article but have not made any progress.
My ArcGIS Services Directory works when I navigate to the http://<host>/arcgis/rest/services URL, and the REST endpoint is available.
My Silverlight application and data (services) are on the same server and domain so I shouldn't need a clientaccesspolicy.xml file.
I don't know what they mean by "InitializationFailure event on the layer" in the fourth solution, where would I find this?
Finally I used Silverlight Spy while trying to browse to the resource but the output didn't report anything even with the output trace level at verbose.
I've spent all day on this one, any pointers would be greatly appreciated.