I've run through your demo 3 times now, and ran into the following problems:

1) The namespace needs to be changed to (Project).Server.Service for the xxxxModel.Designer.cs as well as the metadata, and DomainService files. This is a problem if you make changes to the Domain and it automatically overwrites the file for you constantly.

2) Replicating your example, the Context doesn't get passed correctly through to the .Client.WebApp silverlight app. I keep getting the error Cannot implicitly convert ObjectSet to IEnumerable.

3) The Service application needs references to the System.ServiceModel.DomainServices.EntityFramework (everything added when adding a Domain Service)

4) After all this Silverlight still can't find the correct Context using projection.

So maybe I'm making a big dumb mistake, but this seems to make the separation even more difficult, if you have to rewrite the namespace of the EntityFramework cs file right?

Looks really promising, but leaving those aspects out make it hard to be usable - although your code example works - which contains all the changes above + something I can't find.

Any advice is appreciated. Tks