When you use Visual Studio 2010, you get Development Server, cassini. This is more than enough to host Silverlight, and you should be good. You just need to use FileSystem while creating the project.
It can also be hosted on your IIS server if you wish. Basically, your Silverlight application as such will be an XAP file, which is nothing more than a ZIP file with an appropriate manifest that says what needs to be downloaded. The Silverlight plugin on your webpage takes care of the rest.
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