I tried specifying a MaxMessageReceivedSize in my config for a Silverlight WCF proxy today and it didn't seem to be getting picked up. Not sure what's going on there but if it helps anyone at any point then I just ended up doing this in code;

 ImageServiceClient proxy = new ImageServiceClient();
      BasicHttpBinding b = proxy.Endpoint.Binding as BasicHttpBinding;
      b.MaxReceivedMessageSize = 1024 * 1024 * 20;

and that worked fine for me ( although 20MB is perhaps overkill :-) ).

Update: I've been advised that the config file isn't read in Silverlight 2 B1 so don't waste too much time typing stuff into it :-)