The problem is described well here, so I won't repeat it; but basically, hiding the Silverlight update the naive way doesn't work.
So the question is -- how do I tell Windows to shut up about Silverlight and stop bringing it up on the list?
I recently had this issue also, after installing a Windows 7 VM for work. Having not used Windows for quite some time this was very annoying to me as well.
I had a clean installation of Windows 7, upgraded to whatever the latest service pack is as of this writing and I'd refused to install Silverlight. However, it appears that Windows 7's service packs now "preload" portions of Silverlight, making it show up in Windows Update even when not technically fully installed. Highly irritating.
To fix this issue, I followed the removal directions in the following article from Microsoft's Support website: How to clean a corrupted Silverlight installation and then reinstall Silverlight.
After doing the complete removal from the "Let me fix it myself" section, Silverlight has not once showed up in my Windows Update.
Try disabling Microsoft Updates in settings.
But the side effect is you will not get important updates for other products like Office.