Hosting Silverlight in an embeded web browser is a legitimate way to integrate SL into your native apps and isn't a big deal really. With it you can also do easy 2 way communication between SL and native code. What more do you want?
As far as SL being gimped, yes, I believe it is gimped. All you can do with it (at this point) is move three basic shapes around (line, rectangle, ellipse). Using path shapes require a agree of artistricry that most developers don't posses.
The control library is seriously weak. There are no menus, not even content menus. No copy/cut/paste/delete context menus in edit controls. No text with a link in it. No rich text. No offical mouse wheel support. No right mouse button support. Even the standard controls act weird. Click a list box and drag and it doesn't scroll the contents.
It's full of weird stuff. The object model seems wrong. Some proeprties exist which do nothing. Insome situation other properties work, but not in other situations. There is no bovious way to figure this stuff out without just learning what works and what doesn't. Some properties are animatable, while other are not, with no guide of clue as to why.
The of course there is the whole problem with OOD I mentioned in a previous post.
Hopefully MS will fix this stuff.