I am using VS2010, and Silverlight 4. When I run my code the debugging does not work (I get the above error on my breakpoints.
When I clean my solution a warning comes up saying that the system cannot find the file specified (a project dll). It is looking in the right path (..\debug), but there is no dll present.
I started a new Silverlight 4 project, and get the same error.
Sometime's the debugging does work (I am not sure if/what anything changed, but on one occasion I was surprised that my breakpoints worked. After changing one thing the breakpoints stopped working)
Make sure you are using Internet Explorer to debug your Silverlight app. Make sure you are using Internet Explorer as your default browser. If you are not debuggin in IE, the IDE will not recognise breakpoints.