I'm not sure why it didn't work, but if I had to guess, it would have something to do with the different .NET versions. GSP is compiled against .NET 2.0 except for the WPF project, which is compiled against .NET 3.0. If referencing these from an app that is configured for .NET 2.0, it might not know what a XAML file is, and thus give the error. If you took all the GSP source code and compiled it against .NET 4.0 and then used it in a web app compiled against 4.0, my guess is that everything would coexist nicely.
Roger Martin
Creator and Lead Developer of Gallery Server Pro