Mostly a captive market of Microsoft-oriented devs with invested skills in C#/VB, and an ability to push out a client install package through Windows update.

Having developed against both, I found Silverlight development much easier than Flash development. It makes the most sense for enterprise/corporate/internal applications, where end-client availability is much more controlled.

But outside the firewall, Flash is certainly good enough.

Because Flash is not good enough. Flash video playback has an incredibly poor performance, especially with h264 or HD videos, even on average machines or Macs. Silverlight video playback is simply a lot smoother. I'm not sure if it's their codecs or somewhere else in their rendering pipeline, but ultimately it doesn't really matter. What matters is that my users can play back the videos on my site smoothly even on their shitty commodity Dell boxes.

That being said, I'd love to switch to HTML5. If only all the browsers settled on the same codec.

I know a lot of folks who used it to stream video mostly just because it supported PlayReady DRM. I'm not saying thats the right reason but thats one reason for choosing it over Flash. Netflix used (uses?) it for their web streaming.

Your quip about these plugins being used 98% for video is spot on. I think Flash has served its purpose and should go away now, but it definitely did a good job of kickstarting decent in-browser video in the 2000s.

Porn. Is there anything it can't do?

P.S. Also, MS was too scared to use IE to push forward an in-browser silverlight as a thorough AJAX competitor, as google might end up doing with dash.