The fix after much research is to delete a Playready config file mspr.hds (leftover from the previous Silverlight version) and allow the Netflix player to re-create the file using the new Silverlight installation.
The file to delete or rename (probably safer; in case something goes wrong just rename it back correctly)
On Windows XP:
C:\Documents and Settings\All Users\Application Data\Microsoft\PlayReady\mspr.hds
or
C:\ProgramData\Microsoft\PlayReady\mspr.hds
On Windows 7:
C:\Users\All Users\Application Data\Microsoft\PlayReady\mspr.hds
or
or
C:\ProgramData\Microsoft\PlayReady (Thanks Jarin)
On MAC:
HD > Library > Application Support > Microsoft > PlayReady > mspr.hds
Some fixes out there will tell you that this will not work and the only way to fix the Netflix error is to rollback Silverlight to the older version. WRONG! The important thing to remember is that you have to reload the Netflix player through your browser via the Netflix website. Enjoy!