Hi Mac P,
If you're referencing file from your Silverlight app on your local machine - it's considered cross-schema problem and it's restricted by the Silverlight. In order to play it - you can add it to the xap file as a Resource, or share it on the web in a web Server (like IIS) and reference it from there, or you may add it to the web project and reference it relatively to your xap file.
You may read the full story about those restrictions on msdn.
Hope this helps you.
the Telerik team
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