Suppose I have a Custom Config File which corresponds to a Custom-defined ConfigurationSection and Config elements. These config classes are stored in a library.
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Check out Jon Rista's three-part series on .NET 2.0 configuration up on CodeProject.
Highly recommended, well written and extremely helpful!
You can't really load any XML fragment - what you can load is a complete, separate config file that looks and feels like app.config.
If you want to create and design your own custom configuration sections, you should definitely also check out the Configuration Section Designer on CodePlex - a Visual Studio addin that allows you to visually design the config sections and have all the necessary plumbing code generated for you.