I've developed a WP7 app that uses the MediaElement to progressively download and play mp3 files from external URIs. I've been testing this on the emulator regularly and it works like a charm... But after getting my actual WP7 today, loading the external MP3 gives me a "AG_E_NETWORK_ERROR"
After searching around, I've read that Silverlight doesn't allow cross domain calls? I don't exactly buy that answer since I tested it on a silverlight app and it's been working trouble free on my windows phone 7 emulator.
Can anybody confirm that external mp3's can be played in mediaelemnt on the actual phone?
That's the kind of error you can get when the Zune sofware is running.
You should try to deploy your app, close Zune then launch the app directly on the phone.