I'm absolutely tearing my hair out on this one, and would appreciate
any help anyone can provide. I need to validate incoming XML files
against a local XSD which imports a remote XSD. When setting up the
XmlReaderSettings, I am getting a XmlSchemaException on
XmlSchemaSet.Compile(). I have stripped down my setup to the very
basics below.

(1) REMOTE XSD FILE: Available at http://localhost/ImportedSchema.xsd

<?xml version="1.0" encoding="utf-8"?>
<s:schema id="ImportedSchema" targetNamespace="urn:schemas-me-
com:Test" elementFormDefault="qualified" xmlns="urn:schemas-me-
com:Test" xmlns:tns="urn:schemas-me-com:Test" xmlns:s="http://
www.w3.org/2001/XMLSchema">
 <s:complexType name="TestType">
   <s:sequence>
     <s:element minOccurs="1" maxOccurs="1" name="SomeValue"
type="s:string" />
   </s:sequence>
 </s:complexType>
</s:schema>

(2) LOCAL XSD FILE: Available in output directory

<?xml version="1.0" encoding="utf-8"?>
<xs:schema id="LocalSchema" targetNamespace="urn:schemas-me-
com:TestLocal" elementFormDefault="qualified" xmlns="urn:schemas-me-
com:TestLocal" xmlns:mstns="urn:schemas-me-com:TestLocal"
xmlns:imp="urn:schemas-me-com:Test" xmlns:xs="http://www.w3.org/2001/
XMLSchema">
 <xs:import id="imp" namespace="urn:schemas-me-com:Test"
schemaLocation="http://localhost/ImportedSchema.xsd" />
 <xs:element name="LocalStuff">
   <xs:complexType>
     <xs:sequence>
       <xs:element name="LocalElement" type="xs:string" maxOccurs="1"
minOccurs="1" />
       <xs:element name="ImportedElement" type="imp:TestType"
maxOccurs="1" minOccurs="1" />
     </xs:sequence>
   </xs:complexType>
 </xs:element>
</xs:schema>

(3) CODE trying setup the XmlReaderSettings

XmlReaderSettings readerSettings = new XmlReaderSettings();
readerSettings.ValidationType = ValidationType.Schema;
XmlSchemaSet schemaSet = new XmlSchemaSet();
schemaSet.Add(null, "LocalSchema.xsd");
schemaSet.Compile(); // BANG! XmlSchemaException thrown!
// ... etc ...

What is really strange is that Visual Studio is resolving everything
perfectly within the IDE. if I set up a test XML file, I'm getting
intellisense on the imported types and everything. Here's a test XML
file that is working fine:

<?xml version="1.0" encoding="utf-8" ?>
<LocalStuff
 xmlns="urn:schemas-me-com:TestLocal"
 xmlns:imp="urn:schemas-me-com:Test">
 <LocalElement>Hello</LocalElement>
 <ImportedElement>
   <imp:SomeValue>World</imp:SomeValue>
 </ImportedElement>
</LocalStuff>

Any ideas?

Dave