.NET 3.0 Framework
Huh? XBAP = WPF. I mean XBAP is just a form of deployment of a WPF application. So you can't meaningfully list the differences between WPF and XBAP. That would be like listing the differences between a car and a steering wheel.
BTW: We found that ClickOnce is often a better way to deploy an WPF application than XBAP. If you also use WCF in your application, you require FullTrust and you don't want to be in an XBAP sandbox.
At LogicaCMG we've created two cool ClickOnce deployed WPF applications that use WCF to fetch data from services, yet they also work offline. However, they are deployed on our Intranet so I can't easily show them ;(
For an example of a simpler yet cool ClickOnce deployed WPF app, check out Vista Flickr Uploader (http://www.matthijsdubbeldam.nl/app/VistaFlickrUploader/ and http://www.codeplex.com/vistaflickruploader). It was created by my colleague Matthijs.
XBAP is indeed a form of deployment, so the differences between XBAP and WPF are mostly just that. The details are listed in the article. And indeed with XBAP you run in a sandbox with partial trust, which WCF doesn't support.
I wrote the XBAP/WPF  post so I going to jump in to the discussion.
Yes, XBAP is really just a built in WPF mechanism to deploy your WPF application. Since it runs in the Internet Zone it is constrained to the security limitations of the zone. Which is why you can't make WCF calls. The *.xbap file is just a deployment manifest and the xbap extension is registered with IE during the .NET 3.0 install. As Erwyn says, you can easily create your own ClickOnce deployment to request Full trust.
I keep getting questions about XBAPs though, so I wrote the article for quick comparsion of the two.
I think there is some confusion, because XBAPs show up as a Visual Studio project type. So developers want to know what the difference is between a WPF app and XBAP. Is it like the difference between a Winforms app and an ASP.NET Web application for instance.
BTW Dennis. My name and phone are in the Contact section - the bottom of the right column <g>.
Hi Walt. Your post, to which Dennis linked, indeed makes clear what you are comparing: standalone WPF applications versus XBAP deployed WPF applications. This was paraphrased by Dennis as "list of differences between XBAP and WPF", which is a little too short of a description ;)
lol, there's a list of differences and I can't call it by its name?! :)
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