No, I'm not talking about MSDE or SQL Server Express (even though the MDF file connections are cool). Both require huge installs. Worse, they're really installing a database server on the end user's computer. That's not appropriate for a small, freeware utility - if I started intalling a freeware app and it wanted to install a 40MB database server that would run on startup, I'd cancel the intall.
I've been working with SQLite to moderate success. I'm evalutating SharpHSQL now. WATYF and Rick Strahl list some of the options out there along with their problems - none of them are really there. They shouldn't be necessary anyhow - a solid development framework like .NET should include a basic, embedable DB. Heck, it has support for IrDA End Points, how about a lightweight database?
And - No, no, no, a thousand times no: XML is definitely not what I'm talking about. .NET pushes it, but it's a terrible data storage format.