Hello jason harper,
As of Q2 2009 SP1 there is no need to include any system assemblies in your project since all required classes that we used prior Silverlight 3 are now part of the Silverlight 3 framework. You could try to exclude all system assemblies from your project and try to rebuild it.
The only required references in Q2 2009 SP1 are Telerik.Windows.Controls, Telerik.Windows.Controls.GridView, Telerik.Windows.Controls.Input, and Telerik.Windows.Data.
Hope this helps.
All the best,
the Telerik team