This handy Channel9 post shows how you can create XML Web services using Visual C# 2005 Express Edition Beta 1. I have gotten questions like this and I wanted to explain the difference between Framework support and tool support.
C# Express has full access to the .NET Framework. What that means is that you can create XML Web services using C# Express, you can can use ClickOnce deployment, and you can even access remote data from your favorite database. C# Express does not have full tools support for each of those things.
Coding to a framework is coding to a framework. Assuming you include the right references, you can do anything the framework can do. This is true for C# Express or that other beloved developer tool, Visual Notepad.
[STOP: *pure* speculation and personal opinion - read my Disclaimer ]
If the Team System team were to release the Unit Testing Framework say on MSDN, then you would be able to create unit tests using Visual C# Express. That's a big "if", but if it happened, I think it would make a lot of people happy who can't necessarily afford VSTS but who want unit testing from Microsoft. You obviously wouldn't get tools support, but you could still write and run unit tests. You can of course always use any of the freely available unit testing Frameworks like nUnit and others.