I asked myself: would it be possible to run an executable compiled with NETCF 3.5 run on WP 7?
The answer is very simple: NO for device applications MAYBE for console applications. The reason? There is no System.Windows.Forms library in .NETCF 3.7. Maybe a native application could run but you have to consider that's a new shell in WP 7 so some things changed. For netcf apps even if you could install the old NETCF it will still not work because the shell is different.
The only solution would be to install the old shell, but doesn't make any sense to do it.
So let's stick with Silverlight and XNA.