It is common for developers new to Atlas to ask “So what’s the deal with this ‘xml-script’ stuff?”  Well, I had the same question myself, so I went out and found the answer.  Interestingly, the answer is remarkably similar to the reasoning for XAML with respect to WPF.   Here’s Nikhil Kothari’s take on it:

1. First and foremost declarative markup is more designable that code. This approach will facilitate tool development in the future.
2. Second, it is actually simpler for atlas-enabled server controls to emit or render their script-based functionality in the form of markup (similar to HTML markup) using constructs such as XmlTextWriter.
3. Third, declarative markup enables you to specify what the app needs to do, and not necessarily how. Frameworks can capitalize on the ability to interpret semantics and do interesting things - for example imagine running script functionality on the server to generate an initial view of the page, or a view of the page more suitable for search engines.
4. Lastly, it may be simpler to represent simple scenarios where JavaScript code would require script coding, several event handlers to keep all components in sync (in the example, see how the enabled state of the button is keyed off text entry, and is automatically synchronized without having to write a change handler), which is error prone and hard given the lack of mature tools.

For more on this, read his blog post from September of 2005.