Not sure about your version, but in version 1.0, you have to add
System.Xml to your Project's reference before being able to compile
this.

In the 'Solutions' tab, Right-click on References->Edit References...
In the following dialog, tick the checkbox next to the System.Xml-assebly in 
the list.

-- 
monodevelop not recognizing installed mono libraries
https://bugs.launchpad.net/bugs/202932
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