First, make sure you right-click the file and select Copy to Output Directory.
Secondly, the file will not be embedded in the executable file. This will be a regular * .txt file along with your * .exe, and you will get access to it as such:
StreamWriter sw = null;
FileInfo fi = new FileInfo(Path.Combine(Application.StartupPath, "filename.txt"));
if(fi.Exists)
sw = new StreamWriter(fi.Open(FileMode.Open));
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