C# 3.0 LINQ to XML

static IEnumerable<XElement> ExpandPaths (IEnumerable<string> paths)
{
  var brokenUp = from path in paths
                 let split = path.Split (new char[] { '\\' }, 2)
                 orderby split[0]
                 select new
                 {
                   name = split[0],
                   remainder = split.ElementAtOrDefault (1)
                 };

  IEnumerable<XElement> files = from b in brokenUp
                                where b.remainder == null
                                select new XElement ("file", b.name);

  IEnumerable<XElement> folders = from b in brokenUp
                                  where b.remainder != null
                                  group b.remainder by b.name into grp
                                  select new XElement ("folder",
                                    new XAttribute ("name", grp.Key),
                                    ExpandPaths (grp)
                                  );

  return files.Concat (folders);
}

static void RunQuery()
{
  XElement project = XElement.Load ("myProjectFile.csproj");
  XName ns = project.Name.Namespace;

  IEnumerable<string> paths =
    from compileItem in
      project.Elements (ns + "ItemGroup").Elements (ns + "Compile")
    let include = compileItem.Attribute ("Include")
    where include != null
    select include.Value;

  XElement query = new XElement ("Project", ExpandPaths (paths));
}