How do I return XML from a Stored Procedure?

First, SqlCommand has a ExecuteXmlReader method, not ExecuteXMlReader as you wrote (this is misspelling). Second, SqlCommand.ExecuteXmlReader method returns a value of type XmlReader, not a DataReader as is in your example. So changing your code to:

using (XmlReader reader = cmd.ExecuteXmlReader())
{
    while(reader.Read())
    {
        string s = reader.ReadOuterXml();
        // do something with s
    }
}

should solve the issue.

I had trouble with the simple approach from @Alex and better luck with this approach:

// Execute a SqlCommand that you've created earlier.
// (Don't forget your 'using' statements around SqlConnection, SqlCommand and XmlReader!)
// This is where our XML will end up 
var xmlDocument = new XmlDocument();

using (XmlReader xmlReader = cmd.ExecuteXmlReader())
{
    // Now xmlReader has the XML but no root element so we can't
    // load it straight into XmlDocument :( But we can use XPathDocument
    // to add a node for us first.
    var xp = new XPathDocument(xmlReader);
    var xn = xp.CreateNavigator();
    XmlNode root = xmlDocument.CreateElement("YourFavouriteRootElementName");
    root.InnerXml = xn.OuterXml;
    xmlDocument.AppendChild(root);
}

// Now xmlDocument has all the XML you have dreamed of

Using the reader.Read() ... var s = reader.ReadOuterXml() somehow missed some of the elements in my longer more complex XML. I didn't bother investigating why but switching to XPathDocument worked for me.