Schema Validation -- Gotcha!
Apparently "Validate Instance" is not sesitive at all to namespace differences, so if you take a BTS schema, generate an instance using VS 2005, edit the xml to change the target namespace and then validate that [amended] instance in VS 2005; then the validation will succeed, which is wrong.
By comparison, if you run the same [amended] instance through a code xml validate component (I used XmlValidatingReader) then the validation fails, as you would expect. Any de-serialization attempted against that instance would not work either – as expected!
(Thanks to Ben for confirming this one out so carefully!)