In an OOTB SharePoint 2010 Server installation, if you use C# 3 in your code-in-front, it doesn't compile, since the C# 2 compiler is used to compile the markup. (At least for me - SharePoint 2010 Server on Windows 7).
So how do you enable the use of C# 3 and .NET 3.5 for ASCX and ASPX files in SharePoint 2010? If I use
var or extension methods, my web parts and page layouts won't compile.