Major media enhancements include a new Raw AV pipeline through which third-party codecs can be supported and Smooth Streaming that seamlessly switches in real-time the quality of the video of a media file based on the user’s available bandwidth and CPU.
For richer experiences, Silverlight 3 has a new bitmap API that allows developers to build a photo editor to do red eye correction, and to write their own mathematical functions describing an animation apart from new in-built spring and bounce effects.
Silverlight seems to have started taking SEO with greater seriousness with this version. Deep linking support allows bookmarking inside a Silverlight app, and it will also be possible to automatically mirror database-driven RIA content into HTML.
There are several more but the most talked about new set of features is the package called OOB. Out of Browser Experience. Before you start thinking about it along the lines of Adobe AIR, think Mozilla Prism. Reading this wonderful post by Ryan, to my understanding the Silverlight OOB Exp is something between Prism and Gears.
Read the full list of new features from the Silverlight 3 page.