Web is cross-platform, Silverlight isn't.
I think Microsoft underestimates the importance of the web being cross-platform, and that therefore browser plugins have to be cross-platform too to become ubiquitous. I've tried Mono/Moonlight, it doesn't work (it's at best 2 versions behind so it'll run a few demos and that's about it) and I'm pretty sure Microsoft will keep Silverlight a moving target to make sure it *doesn't* work.
Silverlight? It supports XP and up (on 2000, it will apparently run ONLY in IE6). And Intel Mac.
Flash? Flash 9 supports all the way down to Win98; Flash 10 supports down to Win2K on any browser (well, that supports Netscape plugins or ActiveX plugins). It also supports Mac (Intel *and* PowerPC), Linux, and Solaris. It supports several smartphones and a few "dumb phones". They have an ARM port so the new ARM netbooks should have flash support when they come out. The BSDs use Linux emulation to also support Flash. There's also gnash which is fully portable (Flash's specs are open so this is a full flash clone) but similar to moonlight, last I tried gnash it wasn't quite working right..
The "everyone but Windows" market is small (but growing..), but web browsers are cross-platform... when one plugin is truly cross-platform, has a 99% install base, and is making an effort to become *more* cross platform, and the other plugin isn't, it makes the choice clear to me (and apparently to ITV too.)
I think it was a miscalculation.. I've read Microsoft wanted to use Silverlight as a wedge of sorts, make it popular among web designers so non-Windows users would miss out on all these Silverlight-requiring pages and go get Windows to view them. Instead, those who used Silverlight on their websites saw their viewership drop off.