You need both projects (the game project AND the XELibrary project) in the same solution.
You can open the game project and then right click on the solution and select Add Project. Browse to it from the open dialog box. At this point you should have one solution with two projects.
Once you have both projects in a single solution, you can right click on the References tree node of the Game/Demo project and select Add Reference.
At this point a dialog box should appear that has several tabs. You want to choose the tab "Projects" and then select XELibrary from the list of projects in the solution.
Hopefully this helps, but if not please let me know!
Chad