Silverlight Out of Browser technology and WPF ClickOnce on the surface have similarities. Easy and simple deployment, the ability to specify the level of trust access to the
You mentioned trust access to the host which I think rules out Silverlight unless you want to run SL4 (beta).
We recently went through a lot of discussion about file system access. Silverlight 3 runs in a partial trust sandbox more or less. You can't maintain a pointer to files in the files system outside of your application's isolated storage. This was an issue for us as we wanted the user to be able to use the application to reference odds and ends on your file system. That said you can allow the users to load and save files from anywhere on the system but you just get/or push the file stream and (to the best of my knowledge) don't have access to the folder or file path information.
Silverlight 4 (in beta) has support for your application running in full trust mode. I haven't played with this yet however and can't speak to how well it works.