If you launch an xbap file from the file system (i.e. Windows Explorer), the xbap web application will get cached in the ClickOnce cache (as opposed to launching the application from Visual Studio, which does not affect the ClickOnce cache).  You will always get that version of the application from then on no matter how you try to change or rebuild it in Visual Studio.  There are two workarounds:

1) Run "mage -cc" to clear the ClickOnce cache (this affects the entire ClickOnce Cache, not just this one xbap file).
2) Use the publish wizard in Visual Studio, which increments the version number of the xbap file, which causes ClickOnce to separately cache that version.

(This information is relevant to Visual Studio 2008 Service Pack 1 / .NET 3.5 SP1.)