References are not automatically cascaded, so adding a reference to OLAF.Tools does not also add a reference to SQLXML. If you want to deploy SQLXML with your exe, then the most convenient way to do that is to explicitly add a reference to SQLXML from your exe, and set it to copy local. Without this, it is not deployed. Basically, the onus is on the developer to decide which files are actually needed at runtime (which is often a subset of the references used, and depends on a number of deployment decisions which only you can know).
Re how it is resolved at runtime... the probing paths are a bit of a black art, mainly meaning "the app folder", but it depends on the config, and indeed the GAC may be consulted. You also get an opportunity to provide your own resolver, via AppDomain.Current.AssemblyResolve.
