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With Silverlight using the browser cache, the DLLs could be left on disk within the temporary internet files folder, correct?

You will only see .XAP file on the file system (browser cache). At run time the DLLs will be streamed into memmory and go away once you close the browser. As of beta1, they won't leave any footprint on disk.  

Unless you load the .dlls dynamically, i.e. separately from the .xap. Then I imagine that they will be in the cache.

How can I load .dlls dynamically.

You can't load a random .NET dll. If they DLL had been compiled to Silverlight runtime, it will have to be included into the XAP package. Once it is in the package, you can stream the dll into Silvelright applicaiton and use reflection to instantiate the types. See my other post on "Application Partitioning" for this technique.

Actually, you can load just about any random DLL. Check out my post about it on my blog, http://www.theadvents.com/?p=11

My question is, does Silverlight run in a single AppDomain? If that were true then a dll could be reused across several applications, which could reduce some overhead.