<p>What would be a good local database for a Silverlight application?  The database's main purpose is for local data caching and synchronization services. I do not believe that SQL anywhere or SQLite will work since they use unmanaged code which will not run under the silverlight sandbox</p>

@Aaron Fischer,
I'm very interested in this question too. I'm looking DB for XBAP (WPF in browser) apps. Here is my question
"What embedded database with Isolated Storage support can you recommend?"
SQLite & MSSQL CE (aka SQL anywhere) wouldn't work.
VistaDB is implemented in .NET and can work under constraints (it has support for Isolated Storage) but I'm looking for alternatives.
Another option is Sybase iAnywhere - but I'm not sure how to deploy it on end-user machine.
I'm going to try DB4objects for Silverlight. If it would work, I'll update the post.