Is there any way of opening an in memory window within visual studio?
I'l like to use it like a text editor ( to modify XML data ), formatting, intellisense etc but I don't want to use File > New ... as this creates a physical file on my drive.
In Visual Studio I don't believe so. You could take a look at LinqPad. It's a C#/VB.Net scratchpad to quickly write up code and test it out. There is a free version which is very nice. You have to purchase Pro to get intellisense.