There was an issue caused by a missing clientaccesspolicy.xml file which we have fixed in the latest Q2 2011 release. Please upgrade to resolve the problem and note that the self-hosted WCF should be running when starting the Silverlight application.
the Telerik team
Register for the Q2 2011 What's New Webinar Week. Mark your calendar for the week starting July 18th and book your seat for a walk through of all the exciting stuff we will ship with the new release!