Sometime before SQL Server 2008 RTM, the libraries for LINQ and LINQ to XML (that is System.Core.dll and System.Xml.Linq.dll) but NOT LINQ to SQL will be added to the SQLCLR "approved" assembly list. The approved assembly list is the list of .NET Framework libraries that have been tested in a SQL Server-hosted environment, annotated their code with HostProtectionAttributes where needed, and can be used in user assemblies that can be cataloged with "PERMISSION_SET = SAFE". That means you can use 'em in SQLCLR user-defined functions, procs, and other SQLCLR database objects.
Being curious, I asked "why LINQ and LINQ to XML but not LINQ to SQL"? The answers I got were "LINQ to SQL not tested in this environment" and "not sure there should be yet another way to access the database with .NET". Fair enough. Although, its never seems to be a problem to provide yet another way to mix SQL Server and XML. The number of different ways now exceeds the number of fingers on one hand.
OTOH, SMO doesn't appear to be added to the approved assembly list in SQL Server 2008. Nor has WCF. Oh well.