Silverlight 2.0: You can only add project references to other Silverlight projects in the solution.

When creating Silverlight 2.0 Beta applications, you will receive the following message if you try to reference non-Silverlight projects in the same solution:
You can only add project references to other Silverlight projects in the solution.

If you attempt to use "Add Reference->Browse…", and select the DLL manually, you will receive:
You can’t add a reference to <DLL> […]