Like normal Python development your source files were just text files that you could edit, refresh the browser and then see the changes. When the final version of Silverlight 2 finally came out this had changed slightly. Naturally the source files are still just text but they have to be packaged in a zip file called a "xap" file. The xap contains the Python sources and assemblies and the Silverlight IronPython integration automatically executes the application once Silverlight has loaded the xap.
The development process is still straightforward as a development server called Chiron will automatically package the xap file on the fly. You run this locally, and it runs fine under Mono on the Mac or on Linux if you are using Moonlight 2, and can still edit source files and refresh the browser to immediately see your changes. You do have to package the xap file for deployment though (typically still using Chiron).
Jimmy has written up a paper describing the changes:
This document will detail the changes to the existing Microsoft.Scripting.Silverlight.dll to remove the need for Chiron.exe to simply achieve an acceptable development mode, make the development model more familiar to browser developers and bring out the “just-text” benefits of dynamic languages.One thing this restores is the ability to import external modules direct from the server rather than having to pre-package all dependencies into the xap file. This will allow for faster startup times as modules can be imported in the background or as needed - a welcome improvement.
These changes will introduce no breaking changes to existing DLR-based Silverlight applications; using Chiron.exe for development and starting an application with an app.* file or the “start” initParam will still work. These changes provide a simpler default while preserving the original functionality.
The paper discusses the possibility of a lightweight debugger that could run in the browser and also discusses how inline Python scripts will work, interacting with both the DOM and the Silverlight control(s).