Given that C# is a leans more towards a strongly typed language, why did the designers chose navigation based on URIs over Classes?
NavigationService.Navigate(new Uri("/MyPage.xaml", UriKind.Relative))
fails at run time if MyPage is missing.
If there were a method that support passing a PhoneApplicationPage as a argument like
NavigationService.Navigate(new MyPage());
Navigation related errors can be caught at compile time.
Why was this not an inherent design in Silverlight/WP7 ?
This navigation model was inherited from Silverlight on the desktop (and WPF before it). It's important to note: this is not a String-based model, but rather a URI-based model. The difference here is key: we're not talking about an arbitrary string to point to some XAML, we're talking about a universal locator for a resource that is a page within the application. By addressing navigation this way, your application actually has more than one entry point -- any URI within the application can be a valid entry point. And by making navigation URI-based, you ensure that the "state" of your application as it relates to what you're looking at can be serialized, accessed at any time from any direction, etc.
Imagine, for example, that you have a link on a webpage (or in an email, or anywhere else) that you want to open in your application. Click the link, and because the URI fully describes the resource that the application should display (e.g. an item in a catalog, filters on a search, etc.), you can jump straight to it (a.k.a. deep-linking). This isn't implemented on Windows Phone 7 (at least not from other apps, but it's really how the back button, etc. work), but the model comes straight from Silverlight on the desktop (the Navigation framework is in the Silverlight SDK), and you can see where they might take it on Windows Phone in the future.
Again, the power of the URI is its universality -- it is a common way to identify a resource. Without it, you're stuck with a tight coupling of anything that wants to navigate into your application and the application itself.