I saw a post that presents a misleading description of XAML in LonghornBlogs.com, as if the author of the post has never used XAML. The description has caused some confusion. He is actually describing XUL, which is very different. XUL is similar in that it is based in XML and is used to describe the interface.
First of all, XAML is unrelated to Internet Explorer. It can be hosted in IE, but so can Word and Excel. I believe the approach to browsing is the same as the Office apps, using Active Documents.