Unable to start debugging. The Silverlight managed debugging package isn’t installed.

Just had this problem – Installed Visual Studio 2010 (which installs Silverlight 4), then used Visual Studio 2008 to open a Silverlight 3 project, tried to debug it, and POW!

I fixed it by installing the Silverlight Windows Developer Runtime, as linked to from http://www.silverlight.net/getstarted/