One breaking change you may have noticed between Silverlight 2 Beta 1 and Beta 2 is that WatermarkedTextBox is no longer available in the Silverlight SDK (System.Windows.Controls.Extended.dll). 

We decided to remove the control because in a future version of Silverlight, we will be adding a “Watermark” property to TextBox. Given this upcoming change, it does not make sense to have "WatermarkedTextBox" as a separate control, so we decided to remove the control from Silverlight 2.

Kathy has all the details on her blog, but you can download the WatermarkedTextBox source code and unit test here.