Why dismiss Silverlight so handily? Just because it requires plugin? So does Flash... and Quicktime... and Shockwave... In my personal experience, the SilverLight plugin is painless to load. It's a single click (yes I want it)... done. No browser restart. No system reboot. Very slick.
Also you can expect that MS will ship SilverLight with IE when IE8 ships (whenever that may be) or for IE7 SP1. Very quickly the Silverlight plugin will become ubiquitous (on machines with IE, which is most). Silverlight also works well with Firefox and on Safari. Coming soon for FF on Linux. MS has learned not to hobble its stuff for just IE. That's a step in the right direction.
The other interesting thing about Silverlight is that it is running on a fully compatible subset of WPF (Windows Presentation Foundation) which is the XAML-based GUI engine for Vista (also runs on XP with download). That means that SL games for the web can be trivially download and executed on the Windows desktop as "full" games. That's a nice time saver.
What's really limiting Silverlight right now is its limited control set. Right now SL is a blank canvas with only a few default controls. The rest of the stuff you have to right yourself. The good news is that SL 2.0 will solve that problem (as well as tons of 3rd party control vendors).
So I think that MS is actually moving in the right direction. I don't think they are hampered technologically... the question is can they recruit the hearts and minds of dedicated Flash developers. It's a war of people and attitudes (as evidenced by the anti-MS attitudes I see I already see in this thread), not necessary one of technology. He who wins the developers win.
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