You have several options; as you say, one of them is isolated storage. You can also use the "Custom Settings" function and save the data as a drop of data or XML.
You can also take a look at SqlCompact for a very easy database in progress. Then you can save all user contacts in one database, which could live, for example. in the same directory as the application; you can easily use something like EF4 for your DAL.
It may be a little more effort, although it looks like you are 99% of how this happens with your current architecture.
Isaac abraham
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