Let's start with the basics: as we all know, and for competition sake, browser enhancements must be served through plug-ins, and plug-ins cannot be installed out-of-the-box with browsers / OSs. So every time we install a browser and hit a page using Flash we have to download the plug-in.
Silverlight is no exception. As much as Microsoft would love to deploy Silverlight as a critical update, they just can't. What Microsoft can, and actually did back on January, is to release Silverlight as an optional update. This is particularly important for the IT guys, that can now easily deploy Silverlight through their infra-structures.
Does this favor Microsoft over Flash? Well yes, but not significantly, not enough to pose a juridical problem over their desktop monopoly. One thing is for sure: if Microsoft want's to beat the crap out of Flash, Silverlight will have to deserve the win, not only over IE and Windows, but over uncharted territories: Firefox, Safari, MacOS, Linux...
This is a David versus Goliath war where Microsoft plays the unfamiliar position of David. Adobe starts with all of the market, Microsoft starts with a superior technological product and plenty on resources to push it. Let the best won! For developers not hostile to Microsoft, clearly Silverlight, but let's not forget this is a war that must be settled by the customers.