Jeff Prosise has built a Silverlight application that lets you load photos, remove red eyes, and save the edited photos back to disk in PNG format.
Silverlight 3's new WriteableBitmap class provides the pixel-addressable API needed to manipulate onscreen images, and, of course, SaveFileDialog makes it possible to write modified images to the local file system. The red-eye removal algorithm that I used is a simple one, but it's surprisingly effective.