XQuery AND XSLT 2.0 WILL be available for .NET v2.0!!!
Note: this entry has moved.
Altova announced a royaltee-free distribution of AltovaXML engine complete with .NET interfaces. It supports XQuery 1.0 and XSLT 2.0 (with or without schema support). Excelent news for .NET developers!!!Via TSS (thanks Paul!)