I am interested in writing a simplistic navigation application as a pet project. After searching around for free map-data I have settled on the US Census Bureau TIGER 2007 Line
SharpMap is an open-source .NET 2.0 mapping engine for WinForms and ASP.NET. This may provide all the functionality that you need. It deals with most common GIS vector and raster data formats including ESRI shapefiles.
If you don't mind paying for a solution Safe Software produces a product called FME. This tool will help you translate data from any format to just about any other. Including KML the Google Earth Format or render it as a JPEG (or series of JPEGs). After converting the data you can embed google earth into your application using their API or just display the tiled images.
As a side not FME is a very powerful platform so while doing your translations you can add or remove parts of data that you don't necessarily need. Merge sources if you have more than one. Convert coordinates (I don't remember what exactly Google Earth uses). Store backups in a database. But seriously if your willing to shell out a few bucks you should look into this.
You can also create flags (much like in your sample map) which contain a location (where to put it) and other data/comments about the location. These flags come in many shapes and sizes.
When I gave this answer the question was labeled
"What would be the best way to render a Shapefile (map data) with polylines in .Net?"
Now it is a different question but I leave my answer to the original question.
I wrote a .net version that could draw vector-data (such as the geometry from a shp file) using plain GDI+ in c#. It was quite fun.
The reason was that we needed to handle different versions of geometries and attributes with a lot of additional information so we could not use a commercial map component or an open source one.
The main thing when doing this is establish a viewport and translate/transform WGIS84 coordinates to a downscale and GDI+ x,y coordinates and wait with projection if you even need to reproject at all.
Though you already decided to use the TIGER data, you might be interested in OSM (Open Street Map), beacuse OSM has a complete import of the TIGER data in it, enriched with user contributed data. If you stick to the TIGER format, your app will be useless to international users, with OSM you get TIGER and everything else at once.
OSM is an open project featuring a collaboratively edited free world map. You can get all this data as well structured XML, either query for a region, or download the whole world in a large file.
There are some map renderers for OSM available in various programming languages, most of them open source, but still there is much to be done.
There also is an OSM routing service avaliable. It has a web-interface and might also be queriable via a web service API. Again, it's not all finished. Users could definitely use a desktop or mobile routing application built on top of this.
Even if you don't decide to go with that project, you can get lots of inspiration from it. Just have a look at the project wiki and at the sources of the various software projects which are involved (you will find links to them inside the wiki).
You could also work with Microsoft's visual earth mapping application and api or use Google's api. I have always programmed commercially with ESRI products and have not played with the open api's that much.
Also, you might want to look at Maker! and Finder! They are relatively new programs but I think they are free. Might be limited on embedding the data.Maker can be found here.
The problem is that spatial processing is fairly new in the non commercial scale.