Don't just install SilverLight 2.0 Beta 2 overtop Beta 1, despite what you might hear from people for whom it worked. You may encounter this problem, posted by Tim Anderson.
http://www.itwriting.com/blog/?p=665
Hopefully you won't have a problem, or if you do the process of uninstalling and installing again is easy enough of a solution. However, if you are like me it won't work and you should follow these steps, posted by BradleyB.
http://weblogs.asp.net/bradleyb/archive/2008/06/06/upgrading-to-silverlight-beta-2-and-visual-studio-2008-sp1-beta.aspx
Be sure to click the "Show Updates" (XP) or "View Installed Updates" (Vista) check box in the Control Panel so you can see your updates and find the KB patch to uninstall.
If you don't see the KB949325 patch you are supposed to uninstall, likely you will try to install Visual Studio 2008 SP1 Beta anyway (as BradleyB suggests) and fail after about nearly two hours or so, of waiting for the install to download and complete (with an error). The log will show you that you need to also uninstall KB944899. How do you do that you ask? Well, see what Heath Stewart has to say.
http://blogs.msdn.com/heaths/archive/2008/05/16/kb944899-should-be-removed-before-installing-visual-studio-2008-sp1.aspx
Make sure to follow the link under "Download and run the cleanup tool" (http://code.msdn.microsoft.com/RemoveKB944899)
It is a quick little script that cleans up the registry. Then rerun the VS 2008 SP1 Beta install, which should go much (relatively speaking) faster this time (45 minutes), since it doesn’t need to download the bits a second time. The setup starts off much faster, but then slows way down at the point where it failed last time and is now doing new stuff. I’m running all of this on an XP virtual machine, which may be part of the issue.
The service pack 1 beta for Visual Studio 2008 completes successfully this time and now off to the next install, the chainer. Before running the silverlight_chainer.exe again, I renamed the \Program Files\Microsoft Visual Studio 9.0\Common7\IDE\Microsoft.VisualStudio.ServicesProxy.dll file with an “old” label as Tim suggested in his post (above), just to be sure that I get the most current one.
It seems to have worked this time (90+ minutes to install the silverlight_chainer.exe). I'm pretty sure the chainer completely reinstalls the service pack I just installed for VS2008, but I wasn't going to take the chance of installing the remaining pieces individually and doing it wrong. So why install the SP for VS20008 first you ask? Well, when executed as part of the chainer, if the VS SP install fails, if fails silently, or so it was said on one post I saw.
I can now work with the WCF services again. Now I’m having an issue with my XAML user controls included as part of main XAML page (parse exception that wasn’t there before), but the installation seems to have worked finally.