For some random reason, occasionally Silverlight 2 projects will suddenly no longer support debugging.  Very frustrating.  Fortunately, the fix is pretty simple:

Right click on the Web in the Solution Explorer pane.  If you have a Web project, you will see "Property Pages", if you have a Web Application project you will see "Properties".  Select that.

Under "Property Pages" select "Start Options" and make sure that both "Silverlight" and "ASP.NET" are checked, "Native Code" and "SQL Server" are unchecked.