You don't need to save the file locally. You can read and write the XML directly to a BLOB.
Te DataSet.WriteXml method can write to a Stream. And the Stream can be a MemoryStream, so you can have in-memory the XML that represents your dataset. The API that writes the BLOB, both if you are using directly the REST API or if you are using the
NuGet libabries will take the content from memory. And the reverse process works in the same way for reading. So you don't need to go through a file on disk.