Silverlight "Out of Browser" (or SLOOB) is in the v3 beta. It has some pretty severe limitations though before it will compete with AIR (can't run chromeless, no tray icon support, subject to crossdomain issues as it runs in a browser sandbox, no webcam/microphone support, and more.

I think they're making a big mistake releasing a competitor for the world's best Twitter application platform by not supporting what would be needed to build a Twitter client with it.

Silverlight 3 will. And Silverlight is basically a subset of WPF, so that makes cross development easier (Same skills and tools to do both Silverlight and WPF apps).

Our local Microsoft evangalist was pushing us to develop a thin client app with Silverlight 18 months ago. It's definitely where they want to go with it.