More than just your average Silverlight app... but you need .NET 3.5 - Silverlight's big brother.
Xaml Browser Applications are WPF applications that run in the browser on Windows XP, Windows Server 2003, or Windows Vista. With .Net 3.0, they could run in IE only. With .Net 3.5 (beta2 shipped in July 2007), it can also run in Firefox on Windows.
MSDN Documentation: Browser Hosted Applications Overview
Blog Post: WPF Internet Sandbox Feature List (XBAPS & Loose XAML) lists everything that runs in the sandbox and she links to a few whitepapers that are helpful.
Blog Post: XBAP and Trust Levels discusses how XBAPs run with lower privileges and how you can
Charles Petzold: Converting EXE Projects to XBAPs.