Sure, you can look at this sample: http://help.arcgis.com/en/webapi/silverlight/2.1/samples/start.htm#EditToolsAutoSave
Notice that the map has attached properties SnapKey and SnapDistance, the Editor uses this. If you activate the EditVertices button, key down on S while moving a vertex, it will snap to other vertices on another feature other than itself.
If SnapKey or SnapDistance is not set, they get default by values (Ctrl, 15) as in the EditorWidget sample in our SDK http://help.arcgis.com/en/webapi/silverlight/2.1/samples/start.htm#ToolkitEditorWidget.
The Editor supports GraphicsLayer too. If you choose to use FeatureLayer, you will need an editable feature service. I'm not sure what other MXD settings are necessary. You can probably check the feature service in the sample and view it in the browser to get an idea of what it would look like.
Yes you will need at least ArcGIS API for SL/WPF v2.0, but there were bug fixes in v2.1 regarding Snapping. If you can use v2.1 beta, RC is coming up soon. You will then need ArcGIS Server 10 and also SL 4. As far as SL4 and VS 2008 compatibility, here's a link to MS forum http://forums.silverlight.net/forums/p/178873/402929.aspx. We use VS 2010 though.
Maybe this? http://help.arcgis.com/en/arcims/10.0/mainhelp/topics/admin_publishing.htm
I have not created a any service on my own, sorry I can't help there.
This might help too http://help.arcgis.com/EN/arcgisserver/10.0/apis/rest/index.html
I know, I had trouble finding resource too. After asking the experts, this for sure is what you need:
http://help.arcgis.com/en/arcgisserver/10.0/help/arcgis_server_dotnet_help/index.html#//009300000021...