Elisy.Web.dll v.2.1 classes now allow creation of Xap packages dynamically on the server side. Please refer Elisy.Web.Xap namespace for more details. Silverlight 2.0 SDK includes Chiron.exe helping xap package creation. But it is exe-file and can not be placed into Bin-folder of the ASP.Net server. I have not found any alternative assemblies to make Xap files on the server side.

What is the benefit of xap forming on the fly. You can include additional files (for example XML) into application package and users will not make extra requests to your web-site. Therefore your web application will work faster. The second possibility is to package modules or assembly plugins that can be supplied to users according their saved settings without extra assembly loading. And the third way is to supply different entry point application assemblies to different users varying by style or functionality.

You can download assembly and source code from Downloads page. Assembly is distributed under GPL v.3 license.