I was thinking about how to secure the Data Layer in a C# Application, the layer could in this case be either a LINQ to SQL Model Diagram stored with the Application itself
Where security is that important, for example when you are storing credit card information, you'll usually want the data repository and the webserver on seperate boxes, with a firewall between and both locked down by IP Security.
This way, only the webserver is exposed to the outside world. Your database server is sitting comfortably behind the firewall, and can only be accessed by the webserver through a certain port.
You might also consider SSL encryption on the web services and expose only HTTPS endpoints.