I have created a simple smart client that downloads some xml and puts it into
a document on the client machine. It then launches the default editor for xml
documents (using the Process class and setting the process.StartInfo.Verb =
"Edit"). It then creates a FileSystemWatcher to watch the file and check for
changes (the idea being that it will be able to upload changes back to the
web server). When launched from within Visual Studio 2005, everything works
as expected. However, when launched by downloading the app from a web
browser, the file is created and the default editor launched, but the
FileSystemWatcher does not trigger any events. No errors, no exceptions, it
just doesn't do anything. Are there any known issues with using the
FileSystemWatcher with Smart Clients that might be causing this? Any other
ideas?

The Smart Client has full permission on the client machine, so I don't think
that this can be the problem.