For those who are facing the problems of intellisense not working for XAML files, please follow the steps below to fix that.
1. Uninstall the Silverlight using the control panel snap in as given in the screenshot below.
2. Download and Install the Silverlight Tools by clicking on the following location
3. If you have installed Silverlight DataGrid 2008 Update, then re-installing the Silverlight Tools will delete all your files from your C:\Program Files\Microsoft SDKs\Silverlight\v2.0\Libraries\Client , so you will loose the DataGrid December 2008 update. So you will need to fix this again, details of which you can find in the below given link.
FYI: This usually happens when Silverlight Toolkit is installed before the Visual Studio 2008 IDE, Usually when we install Silverlight Toolkit, it installs the patch for Visual Studio 2008 IDE which enables intellisense. But in absence of VS2008 IDE, Silverlight Toolkit skips this patch.
This patch for intellisense will get installed only when it detects VS2008 IDE already installed in our Systems.
I hope this helps.