Dan Wahlin explains very precise how to use relative path support for calling services in Silverlight 4.
If you’re building Silverlight applications that consume data then you’re probably making calls to Web Services. We’ve been successfully using WCF along with Silverlight for several client Line of Business (LOB) applications and passing a lot of data back and forth. Due to the pain involved with updating the ServiceReferences.ClientConfig file generated by a Silverlight service proxy (see Tim Heuer’s post on that subject to see different ways to deal with it) we’ve been using our own technique to figure out the service URL. Going that route makes it a peace of cake to switch between development, staging and production environments.