If you currently have code that uses XSLT and you are anticipating a move to Whidbey, be advised that the XslTransform class is obsoleted, replaced by XsltCommand. The XsltArgumentList class will continue to live for passing parameters to XSLT stylesheets.
Note also that the .NET Framework 2.0 will not ship with an XQuery implementation. There will continue to be XQuery support in SQL Server 2005, code-named "Yukon".
For more information on the changes in System.Xml, see the list of changes in Beta 2 by Dare Obasanjo, PM for System.Xml.