How to embed xml in xml
You could convert the XML to a byte array, then convert it to binary64 format. That will allow you to nest it in an element, and not have to use CDATA.
The W3C-approved way of doing this is XInclude. There is an implementation for .Net at http://mvp-xml.sourceforge.net/xinclude/
Just a quick note, I have gone the base64 route and it works just fine but it does come with a stiff performance penalty, especially under heavy usage. We do this with document fragments upto 20MB and after base64 encoding they can take upwards of 65MB (with tags and data), even with zipping.
However, the bigger issue is that .NET base64 encoding can consume up-to 10x the memory when performing the encoding/decoding and can frequently cause OOM exceptions if done repeatedly and/or done on multiple threads.
Someone, on a similar question recommended ProtoBuf as an option, as well as Fast InfoSet as another option.