You would do it by creating a page to return your XML. Instead of
"example.xml", you'd use "example.aspx". This page would set
Response.ContentType to "text/xml", and would send the XML directly from SQL
Server using Response.Write. It would be something like this:

using System;
using System.Data.SqlClient;
using System.Web.UI;
using System.Xml;

public partial class Example : Page
{
   private const string CONNECTION_STRING =
       "Data Source=localhost;Initial Catalog=AdventureWorks;Integrated
Security=True";
   private const string XML_COMMAND =
       @"
SELECT (
   SELECT [dbo].[Contacts].[ContactID],
   [dbo].[Contacts].[FirstName],
   [dbo].[Contacts].[LastName],
   [dbo].[Contacts].[City],
   [dbo].[Contacts].[State],
   [dbo].[Contacts].[Zip] FROM Contacts
   FOR XML AUTO,TYPE,ROOT('YourRootElement')
) AS XML
";

   protected void Page_Load(object sender, EventArgs e)
   {
       using (SqlConnection connection = new
SqlConnection(CONNECTION_STRING))
       {
           connection.Open();
           using (SqlCommand command = new SqlCommand(XML_COMMAND,
connection))
           {
               using (XmlReader reader = command.ExecuteXmlReader())
               {
                   reader.Read();
                   Response.Write(reader.ReadOuterXml());
               }
           }
       }
   }
}

Of course, having an XmlReader means that you can do any XML processing you
might like on the result. You can run an XSLT transform, for instance.