It's shader based like WebGL. They use the XNA API (not the WPF 3D API) to access the GPU. The feature set is more or less the same as WebGL and Flash 3D.
The main differences to WebGL are that the shaders are precompiled to a binary token form and that they use state objects (like DX10). But as it is based on DirectX/XNA this should no surprise.
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I have tried to look into Silverlight 5 features, but I could not find any coherent source of API documentation. I can only surmise that Silverlight 5 does not support shaders at all, and is just a fixed function forward shading polygon rasterizer. Please correct me if that is a wrong impression.