The best idea is to have a WebService that acts as your business/data access layer. This actually gives you a centralized database. So, I didn't break my head further and moved ahead implementing the WebService solution. This solution also required a lot of brainstorming and troubleshooting. We always used to get "Trust Not Granted" when we used "This is a Full Trust application".
When we used partial trust, it would fail with "System.Security.SecurityException"
Request for the permission on type System.Net.webPermission failed.
You need to install this certificate at the client machines where the application is supposed to run, under Trusted Root Certificate and Trusted Publishers zone.
Once done, you can also use a Full Trust ClickOnce deployment.
Enjoy XBAP.