Are we able to host an .xap in IIS? Are we able to have SL application without web project i.e. html and aspx pages? If so, then the way the silverlight application is going to be located and used?

Unsure why the tough lower-voting, because it is helpful to understand how to do raw Silverlight hosting, however, you can host a XAP file virtually anywhere. It's the Silverlight wordpress plugin that knows what related to the file (similar to the expensive knows what related to expensive files located anywhere).

For example these blog records (my blog) show how you can host a silverlight application/XAP to be used in Wordpress: http://blog.hitechmagic.com/?s=silverlight+in+wordpress

At its most fundamental you need to do need some Javascript to fireplace in the Silverlight engine inside the browser, which requires some kind of fundamental HTML page, so unsure why you would like to just (most probably) run the XAP like a download? Possibly you are able to clarify?

You will need a browser (and therefore an HTML page) to host the XAP while using SilverLight wordpress plugin.

However, you are able to encourage the user to download and install your application by which makes it a SilverLight Out-of-Browser Application.

Silverlight-based programs typically run within Webpages, but you are able to enable customers to set up them on the internet and run them outdoors the browser.