Invalid URI: The Uri string is too long
the problem is that the xml in your xmlreader.create function should be a uri if the argument is a string.
eg.
XmlReader reader = XmlReader.Create("http://ServerName/data/books.xml", settings);
In your case the xml file is being interpreted as the url and hence it is complaining about the limit.
look at this msdn doc XmlReader.Create Methodfor different overloaded methods..
I am guessing you should use the TextReader one.