Surprise-surprise!
WPF: The Image class enables you to load the following image types: .bmp, .gif, .ico, .jpg, .png, .wdp, and .tiff.
Silverlight: [Image class] Represents a control that displays an image in the JPEG or PNG file formats.
No error is displayed, it just shows a blank rectangle. I understand that GIF format was once controversial due to patent issues, but the patent has long expired, and most web browsers support GIFs natively. Also, the decompression algorithm is dead simple (I implemented it in college as an exercise), so it is somewhat surprising that Microsoft won’t include GIF support in a web-oriented library like Silverlight, but will include it in a desktop package like WPF. Anyway, this ship has sailed: both are yesterday’s news now, and Microsoft is currently busy with WinRT 🙂