Here I'll paste my answer from the support thread so that other users with similar problems may read it:
"The problem is that our Silverlight assemblies from the 2011.3.1116.1040 release are built against SL 4. Furthermore the Persistence dll has a reference to System.Xml.Serialization version 220.127.116.11 but SL 5 uses System.Xml.Serialization with version 18.104.22.168 and that's why when you use the persistence and it tries to load the 22.214.171.124 dll it throws an exception.
To fix this issue you'll have to update your telerik dlls - our first release with SL 5 support is Q1 2012 and in it the Persistence dll is using the new System.Xml.Serialization dll."
I hope I was able to help you and if you have more questions please feel free to ask.
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