Silverlight is here to compete with Flash and Flex. I believe everyone is aware that Microsoft has set its sites on Flash and is workign to show they can take over the market. You might consider it a losing battle to go against Flash, but then when Internet Explorer started, there was already a dominating company in the browser market too. That didn't stop Microsoft then, I don't think the domination of Flash is going to stop them now.
InformationWeek posted an interesting article about Microsoft Planning Big Things For Silverlight -- Microsoft Silverlight In this article, they comment on many of the things coming together that will lead to Microosft taking over more of this market. This includes the Moonlight support on the Linux/Open Source site as well as the Eclipse4SL project that is adding Silverlight support within Eclipse.
If past history is any indicator, the battle between Silverlight and Flash is on ground with the battle of Microsoft Word against Word Perfect, the battle of Microsoft Access against DBase (and then Paradox), the battle of Borland C++ against Microsoft C++/Visual C++, and several other classics where Microsoft started out as less than a blip. We know how those battles turned out.
In the case of Flash versus Silverlight, it is likely just be a question of when, not if.