"The current release does not support stored procedures" <-- This is going to be a major problem if it's true.

http://en.wikipedia.org/wiki/SQL_Server_Compact 

Ah, of course!

Thanks for the quick response! :)

Indeed, you'll want at least SQL Server Express http://www.microsoft.com/sqlserver/en/us/editions/express.aspx

Then how about SQL Server Code Name "Denali" CTP3 (eg SQl Server 2012), with LocalDB?

http://www.microsoft.com/sqlserver/en/us/default.aspx

I really like the idea of having a small shared component/file directly in the project, instead of having a service running using unnecessary power all the time, while developing. :)