I have used the ComponentOne WP7 controls to show some RTF formatted text. They have a RichTextBox control. You can take a look at
Windows Phone 7 Controls | ComponentOne Studio? for Windows Phone
Found it easy to use, but have an issue where it's slow to load a page that has the rich text box control on it. Seems to be faster once it has loaded at least once, meaning if you load a page (for first time with rich text box control - its sloooooowwww), then go back to say menu and go back to page with the rich text box control it fast, just the initial lauch is slow. Seems like it chache's it or something.
May be worth a look for you.