Found the solution to my problem...
I created my labels from the layers in the table of contents in my mxd, then went through the 'Map Service Publishing' toobar to publish the service to the server.
My mistake was trying to individually add the layers from my map service (layers created from the mxd) into the Silverlight application builder, instead of adding the entire map service created from the mxd. When I add the entire service, the labels work. But, when the layers are added individually, they don't work.
R. McLain