If you are worried that your Silverlight 3 application might not work with Silverlight 4, read this blog post of Tim Heuer.
Okay, scenario 1 is I have a Silverlight 3 application (XAP), will that still work as-is in Silverlight 4?
Yes, this is the situation we refer to as backward compatibility. What this means is that existing compiled XAPs under previous versions should continue to work as-is even if your users have a later version of Silverlight installed on their machine.