Hi,
You gave me an idea jonah and I think I merely solved my problem. You may try the same if you like.
Uninstall the runtime version of silverlight that came with the dev tools beta 1, then both IE and Firefox prompt you to download the alpha version of 1.1 runtime, do it and install it. Vuala, you have a working silverlight application for IE.
Firefox for some reason still prompts you to download the alpha version. I didn't have the time to search it further but it wouldn't surprise me if the alpha versions of MS products work only for MS products :-) .
If you know what I mean, anyway is good for testing.
The comment for you guys in vwg is that, probably web apps using silverlight must either "demand" a specific version and prompt for download or play with the latest version available installed or not.
Cheers,
Semag