I read Scott Hanselman's well-written article HOW TO: Debug into a .NET XmlSerializer Generated Assembly. I can add a few more little (and most likely obvious) things to his article:

• This still works in .NET 2.0.
• If you just do an Add New Item to add a new Application Configuration File to your project in VS, you can just paste the debugging flags in, and the config file will get deployed to the application directory automatically.
• You can just Step Into (F11) the call to x.Serialize, and you will be taken into the proper generated file. You may want to open the file manually as Scott mentioned, but I find it to be faster to press F11, and then go to the place in the file I want to debug.

In the end, we ended up writing our own serialization for .NET CF due to one too many bugs.