With the release of Version 2.0, it seems as though Silverlight is definitely headed in the right direction. Version 1.0 showed some promise, but the lack of solid native User Interface controls was definitely an immediate handicap to be overcome. With Version 2.0, there are more than 30 UI controls shipped with it. Where Flash definitely has some great ability to do some interesting things with presentation, the development process is not the best. We still look to use Flash primarily for public websites due to the market penetration of the install base, but I now think it is worth keeping an eye on the progression of Silverlight since it is definitely a better platform for true application development.
For more details on Silverlight: http://silverlight.net/, http://en.wikipedia.org/wiki/Microsoft_Silverlight