I just caught this video over at Channel 9 which describes and demos "WPF XBAP". All this time, we've been hearing about WPF, which will enable desktop applications via XAML, and WPF/E which was going to be a limited, cross-platform version of WPF. I've been contending that WPF was more competitor to Apollo than Flex 2, but this changes that.
WPF XBAP runs in the browser, and is clearly meant to compete with the other "web application" solutions including Ajax and Flex 2. It doesn't seem to be cross platform, although those with Vista can run it without any upgrade, and IE 7 users will have a smooth upgrade process similar to what Adobe is doing with the Flash 8 to 9 upgrade (from what I can tell).
I'm still trying to get information on a possible release date and where this fits into the .NET 3.0 world, but I think this may be a very good option for people developing web applications in a Microsoft environment. If you're looking for something more lightweight than regular WPF, this could be your option. And if Microsoft can release a plug-in for the Mac that runs WPF XBAP, then all of a sudden we have a ball game. How does the Expression delay play into this? We'll have to wait and see.