InfoQ is reporting that:
But Silverlight will not include a C# compiler on the client side. You will still be able to author libraries and assemblies with C# and write your application with it, you just wont be able to dump a C# source file over the network and expect that to be compiled and ran on the client machine.
That being said, Mono does have a C# compiler written in C# and we could ship that compiler, and people could use this as a dependency if they wanted to.
Now, what would be an adorable hack would be to relicense Mono's C# compiler commercially to Microsoft and have them distribute it for Silverlight ;-)
Thanks to some fine contributions, Mono's C# 3.0 compiler is in great shape (missing some things, but they will be done in no time).