Software Update

When using Visual Studio 2008, it is possible to use most of the new language additions of C# 3.0 in a .NET 2.0 project. This because the C# 3.0 compiler is used for both .NET 2.0, .NET 3.0 as well as for .NET 3.5 projects in Visual Studio. This means that local variable inference, object initializers, extension methods, lambda expressions, etc. … can be used in a .NET 2.0 project.

The one thing that is missing however is LINQ because those extensions are packaged in the new System.Core assembly which comes only with .NET 3.5.
But now you can explore Linq in .NET 2.0 project with You can download it here. It's Free.