Trying to see the streamed content on web browser with the URL
http://localhost:1234/default.html but getting an error stating "Could not open media file http://localhost:1234/default.html requires output to be hosted on a web server running IIS 7.0 with the smooth streaming handler installed and a Silverlight template that supports Smooth Streaming. AG_E_Network_Error" Can anybody suggest me on this.

Not enough information here, as there are many causes for this error. This error could occur if the Silverlight app were downloaded or moved from its source, or there are references to a different domain than where it resides.

These links may help.
How to fix ErrorCode :1001 with message "AG_E_NETWORK_ERROR" : The Official Microsoft Silverlight Site
How to handle image AG_E_NETWORK_ERROR errors
AG_E_NETWORK_ERROR using MediaPlayer control in Silverlight 3
MediaPlayer Could not open media file Error : The Official Microsoft Silverlight Site