Thanks Anthony,
Great! We are on same page now. I am wondering if you ever have go to "ArcGISDynamicMapServiceLayer Class" of ArcGIS API for Silverlight 3.0 page and check this below.
ESRI: "Note: Both FeatureLayers and client side generated Dynamic Layers there is a default 1000 return feature limit imposed by ArcGIS Sever to maintain performance. This maximum number of records returned by ArcGIS Server 1000 (aka. feature limit) can be increased when publishing the ArcGISDynamicMapServiceLayer. The 1000 feature return limit does not apply to a regular ArcGISDynamicMapServiceLayer."
The last part "The 1000 feature return limit does not apply to a regular ArcGISDynamicMapServiceLayer" is very clear. The limit is new for Dynamic Layers. So, the point you made is for ArcGISDynamicMapServiceLayer, and is for all type of Map Services, since 1.2 api (500).
My point is there is not limit, and Dynamic Layers works perfect with no limit and no performance issue at all. I am really happy Esri Server team implemented it. But it documented incorrect and I would like to confirm this as well.
BTW, I am appreciated your response.
Regards,
Tom