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To _mobile_ Linux. For normal Linux there is Moonlight.
I don't see the need to make that distinction here. It should be trivial to port from Moblin to desktop. And I'd assume that Intel's Silverlight would be better than Moonlight, as it should be more lightweight and it is based on offical Microsoft Silverlight, so it should support wider range of Silverlights features. Only reason imho to choose Moonlight over Intels Silverlight would be licensing issues, as I don't think it will be FOSS.
I don't get it.

Are Intel saying Moonlight sucks? Too big or bloaty? The wrong licence? Too Not-Invented-Here-ish?

Why wouldn't it be in the best interests of Microsoft, Intel and Novell to work together on this?

I think bloat is the issue but not in a negative way. Silverlight is a subset of the .Net Framework in that Microsoft Jettisoned any unnecessary feature to make the package size smaller. While Moonlight is a port of Silverlight it requires Mono to run and Mono is an attempt to port the entire .Net Framework to Linux.

So if you want Silverlight on a cell phone and you want it to be as small as possible Mono doesn't fit your goal (which is what I have to assume Intel was thinking).

In that case couldn't you strip out the parts of Mono that aren't needed by Moonlight?
Great! Now I can opt not to install Silverlight on two platforms instead of one.
What they really want is flash for linux/arm.
Intel absolutely does not want flash for linux/arm.

They want every netbook to have an Atom in it, and flash support is by far their biggest weapon for doing so, even bigger than the ability to run Windows.

Oh! What would moblin work on, arch-wise?
Since they're talking about Atom in the article, at least it runs on the x86 family.
Moblin originally was an Intel/Atom thing. They've sort of handed it over to the Linux foundation so you'd expect it to grow from there but while Intel have made that move to avoid looking predatory, you can't really expect them to put in the man hours for other architectures.
It's done; Maemo 5 includes Flash Player. That's not relevant to Intel, though.
At the moment, they say Maemo 5 has "full Adobe Flash™ 9.4 support". No Flash 10.0 though, perhaps that's not ported to ARM yet.
Of course with the DRM codecs from Microsoft you still won't be able to watch netflix on Linux.
Really? That'd suck. I use IE inside VirtualBox to watch Netflix movies, such a bloated pain.
AFAIK DRM works in Moonlight; I don't see why an official port of Silverlight would not include DRM.
Really? Generally the need to put secrets into your code, as required by DRM, makes open source and DRM mutually exclusive.

But that wouldn't stop a proprietary Silverlight for Linux (which this may be) from working with DRM.

I think Moonlight's DRM code is closed but the rest is open.
Too late. MLB.com, the only site I cared about using Silverlight, dropped it last year in favor of Flash.
Here's hoping HTML 5 will deliver and this platform will be irrelevant. Zero-footprint! Silverlight looks too much like embrace and extend to me.