Not sure what the problem is because it works in IE8 for me.
I took your snippet and pasted it into notepad and saved it as test.xaml. Then opened it in IE8 and it rendered find (i.e. "Hello World!" appeared). Not sure this matters, but I am an administrator on this machine and have Visual Studio installed.
AFAIK you can't just dump XAML into a web browser and expect it to create the window that way, unless the browser would (on its own) load the WPF rendering engine inside itself and compile the XAML to show in the browser.
There is a tool named XamlPad that you can use for this though, I think.
IE8 and Firefox 3.? both should support this use of xaml. You have to have a page root instead of a window root. The sample clearly works for some people, so I'm just trying to figure out what setting or conflict could be interfering for me.