In this Demo I will show 3 ways to have your web page locate your MediaElement’s video file.
I have created a Silverlight 3 application and let it automatically create a web site to host the control.

Drag a <MediaElement> onto the UserControl and set its source file attribute.

Drag the video file using window explorer and drop it in the root of my Silverlight’s UserControl project.

Note the size of this file is about 25mb.

I will demo 3 different methods for setting the location so that the web page can find it.
Method 1
Highlight the video and set its “Build Action” to “Content”
Your properties will look like below:

Change the source attribute to have a forward slash before the video name.

Build the solution.
Test using the test aspx page (TestMediaTestPage.aspx) in your web project and the video should work fine.
Check the size of your xap in the ClientBin folder. Notice that it includes the video file.

Method 2
Again from a fresh Silverlight solution containing the 2 projects, drag the video to the root of the Silverlight project.
Highlight the video and set its “Build Action” to “Resource”.
Add a <MediaElement> onto the UserControl and set its source file attribute.
In this case a slash is not used in front of the file name in the MediaElement

Build the solution.
Once again check the size of your xap in the ClientBin folder. Notice that it includes the video file.
Test using the test aspx page (TestMediaTestPage.aspx) in your web project and the video should work fine.
Method 3
Again from a fresh Silverlight solution containing the 2 projects, drag the video to the root of the Silverlight project.
Highlight the video and verify its “Build Action” is set to “None”.
Add a <MediaElement> onto the UserControl and set its source file attribute.
It does not matter if a slash is in front of the file name or not in the MediaElement
Build the solution and using windows explorer check the size of the xap file in the ClientBin.
Notice that it does not include the video file.

Using windows explorer, drag the video file into the ClientBin folder.

Test using the test aspx page (TestMediaTestPage.aspx) in your web project and the video should work fine.
Here is a video recap.