When I enable the 'Reduce XAP size by using application library caching' setting on a project in Silverlight, I am finding that certain files are missing from my ClientBin folder and now show up in Visual Studio's solution explorer with the warning icon on them, such as System.Xml.Linq.zip and System.ServiceModel.DomainServices.Client.Web.zip. The vast majority of files copy however and have no warnings. I'm wondering if someone knows how to fix this? If I enable this setting, the missing files copy into ClientBin just fine. I'm assuming that they reason they are missing with the setting disabled is that they are contained within the XAP file, but then why is it still expecting them to be in the ClientBin and giving me the warning indicator icon.
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In the Properties Section of the files with the warning icon, check the Copy to Output Directory
field. Change it to Copy Always
. These are those references that you externally add to your project hence the inclusion in ClientBin is necessary. Also check the physical presence of the files in the directory.

vaibhav
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Thanks for your response, but this doesn't work. I simply receive an error that the file cannot be copied because it cannot be found. – user964210 Jun 11 '12 at 13:11
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well, do have a thorough look in the directories in which files are supposed to be. If problem still not solved, then simply create a new project (or solution), add all files in it with references added in it and then follow above steps in the answer. That might solve the issue you are facing. – vaibhav Jun 12 '12 at 05:21