In the interest of generality, Simon asks if there is an XmlReader implementation that traverses an XPathNavigator.Such implementation seems to be trivial, but an interesting point is that such XPathNavigatorReader could easily give xpath1() XPointer schema support for our XInclude.NET project! And if I'm right in my assumption that element() XPointer schema can be translated to xpath1() schema on the fly by changing any NCName to id(NCName) and any numbers to *[number], this will give us also element() schema support with almost no efforts.
I'll elaborate it further on XInclude.NET Message Board.