When Microsoft released Silverlight in 2007, it was widely seen as an attack on Adobe's Flash player. Silverlight has come a long way since then, adding lots of features in version 4.0 that was just released in April. One thing that it hasn't done, though, is kill Flash. If anything, the predator is now suffering from friendly fire at the hands of its own company.Both Flash and Silverlight seem to be getting toasty; Flash has suffered its own trials and tribulations. A web site that has a Flash intro is now the sign of a technology-tone-deaf company, unless it's an entertainment site. Plus, both are finding themselves shut out of mainstream mobile app development; Apple banned Flash from the iPhone/iPad and Microsoft didn't even try to deliver an iPhone version of Silverlight.
Microsoft's original spin on Silverlight was that it "provides enhanced Web audio and video streaming and playback." That's still front-and-center with Silverlight 4.0, including delivery of DRM-protected content in dedicated devices. So Microsoft is certainly realistic about what people really do with Silverlight -- most of the time it's just being used as a video player. Video playback is a common use for Flash as well, but at least Flash has a decent-sized installed base of non-video-player applications.
<video> tag, even the support-role of video player is threatened.
Ultimately, it seems like Silverlight is destined to become a niche product. Microsoft plans to use it for Windows Phone 7 development, so it's not going to disappear. Yet it's very unlikely that Silverlight will (or should) be used for developing Internet web sites.