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.

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.