I was trying to reduce the silverlight xap file size and selected "Reduce XAP size by using applicaiton library caching" to true in Silverlight project properties, which reduced the size of xap file by caching the assemblies.
When i ran the application, i've encountered "Message: Failed to download a platform extension: System.ComponentModel.DataAnnotations.zip" error and was checking out the cause for this error. At last found that this error is occurring after setting the "Reduce xap file size" to true.
Solution: Changed the startup project from Silverlight project to Website project in silverlight project properties.
For more information on Silverlight 3 Cached Assemblies check this link