We've run across some issues with our web services features in the Silverlight 3 Beta and I want to share these here to hopefully save folks some time and frustration.
Issue: On Windows 7 Beta, you might encounter the following error when generating a proxy: "The element 'httpTransport' cannot contain child element 'extendedProtectionPolicy' because the parent element's content model is empty".
Workaround: On Windows 7, when you use the Silverlight-enabled WCF Service item template, an <extendedProtectionPolicy /> element may be generated in Web.config. This element is not supported by Silverlight. Simply remove the element from Web.config and try regenerating the Silverlight proxy.
Issue: If you use the Silverlight-enabled WCF Service template and you try generating a Silverlight proxy using Add Service Reference on a machine with both Silverlight 2 and Silverlight 3 Beta SDKs, you may get warnings at proxy generation time and errors at runtime. The warnings can include a variety of "Cusom tool" warnings which state that the endpoints found are "not compatible with Silverlight 2" or "No endpoints compatible with Silverlight 2 were found."
Workaround: If you are using Add Service Reference to generate proxies, side-by-side installation of the Silverlight 2 and Silverlight 3 Beta SDKs is not supported. Please uninstall the Silverlight 2 SDK to use Silverlight 3 features. After uninstalling, ensure that the assembly Microsoft.Silverlight.ServiceReference is not present in the machine GAC.
Issue: When using Add Service Reference to generate a proxy to a WCF duplex service (a service built with the System.ServiceModel.PollingDuplex.dll assembly provided in the Silverlight SDK), the generated proxy may not compile and may complain about a missing assembly reference.
Workaround: The proxy for the duplex service is generated correctly, however Add Service Reference will sometimes forget to reference th System.ServiceModel.PollingDuplex.dll assembly in the Silverlight client. Simply add a reference to the assembly (right-click in the Silverlight project, select Add Reference, find the assembly in the list on the .Net tab), and the proxy should now compile.
Hope this is helpful!-Yavor Georgiev