Michael Rys has pointed out that the W3C have finally reached candidate recommendation level with these interdependent specs. As far as I recall, .NET 2.0 supports XQuery but not XSLT 2.0, but it won’t be long before libraries will be made available for both one would suspect.
[Update: The .Net 2.0 framework does not include XQuery anymore (see http://blogs.msdn.com/xmlteam/archive/2005/01/28/362406.aspx for the why’s). SQL Server 2005 however does currently support a subset. Also, the people for the .Net XML stack are looking for feedback on the XSLT 2.0 product requirements (see http://blogs.msdn.com/xmlteam/archive/2005/06/07/426511.aspx). ]