Problem: You have some XML, and you need to validate it against a custom schema that you want to deploy with your .Net 2.0 assemblies. Issues addressed: opening the file and handling the schema validation.
XmlSchema class contains a Read method that takes a stream as a parameter. Nicely matching up to that, you can open a stream from an embedded resource (thank you, attilan.com).So, embed the schema. In Visual Studio's Solution Explorer, right-click the schema file and choose properties. Change the Build Action to "Embedded Resource".