I know I have done this before, but it isn\'t working today, nor can I find anywhere that explains how to do it. It could be my lack of sleep, but I suspect gremlins.
Another point of failure here is Windows 7 "blocking" schema files... right-click on the xsd file on disk, Properties > General and if it's blocked, you'll have an "Unblock" button. This was causing my XML validation to fail in VS2012.