For those interested in why XQuery is not in .NET Framework 2.0, Arpan Desai's blog has a short summation here. Also, one of the outstanding issues is that XQuery will not reach Recommendation status by W3C until sometime next year while Framework 2.0 is set to be released this year.

Not that I know, but I would venture to guess that we will see XQuery in the .NET Framework with an updated version (2.1?) which will probably be available around 2007.