Can there be some type of simple database system that utilizes simple text or xml files for data storage? I simply take some fundamental functionality like update,remove, place, simple constraints and relations.
For that project which i have finally using SQL Server could be too heavyweight and I have not really loved it anyway.
Yes it's: SQLite :)
There's ADO Provider: http://sqlite.phxsoftware.com/forums/default.aspx?GroupID=2
There's article on that: http://www.aspfree.com/c/a/Database/Using-SQLite-for-Simple-Database-Storage/
The DataSet in the .Internet Framework can also be a choice. See DataSets, DataTables, and DataViews (ADO.NET) on MSDN.
SqlCompact is a superb choice for this. There's no engine or setup, just range from the .dll and you will produce a database quickly.
SQLite is a great option.
As your using .internet though, i'd consider simply using xml and LINQ to XML, it is extremely sql like in lots of ways.
Take a look Stack Overflow question: Free portable database
There you'll find listing of "lightweight" databases.