I was getting following error Error: Unhandled Error in Silverlight ApplicationCode: 2104Category: InitializeErrorMessage: Could not download the Silverlight application. Check web server settings
The actual solution of this problem is unavailability of Mime type in the IIS, as written in http://blog.stronico.com/2009/10/how-to-solve-unhandled-error-in-silverlight-application-code-2104/
and some other website as well.
However you might experience this error also when you might have added a Silverlight Unit Test Application project and opted to host the test project on the same Silverlight host project. This basically adds two more ....TestPage.aspx and html pages. To solve this problem either you should host your test application on the new project or you can make the ...TestPage.xxx as the Start Up Page by right clicking them.
Hope this helps.