Look into the "Cider" add-on for VS2k5 to support WPF & Silverlight.
You'll end up writing XAML directly, which is the best way to start with this new stuff anyway. The Cider designer is, ...just edit the XAML directly for now...
Blend is available if you have an MSDN subscription. It is part of the new Expression Suite. Blend creates .sln for VS2kx consumption and is a GUI design tool that you'll want to use rather than Cider or even VS2k8, imho.
I would imagine the hosting is for anyone experimenting with Silverlight and not for free production hosting where you make lots of money, but I have not bothered to find out yet.
Have fun with the new stuff, it's a big bite. This is written above in the initial post, too:
While the product is in pre-release, storage and delivery is free up to 4 GB, with outbound streaming up to 700 Kbps. As we move out of Beta, developers/designers will have continued use of the service with up to 1 million minutes of free video streaming at 700 Kpbs per site per month. Unlimited streaming will also be available for free with advertising, or with payment of a nominal fee for the service for use without advertising.