<p>How are people unit testing code that uses Linq to SQL? </p>

Normally, you don't need to test the part of the code that uses LINQ to SQL but if you really want to, you can use the same data sets that you're querying against the server and turn them into in-memory objects and run the LINQ queries against that (which would use the Enumerable methods instead of Queryable).
Another option is to use Matt Warren's
mockable version of the DataContext
.
You can also get the SQL statements that LINQ to SQL uses by getting them via the debugger (from the IQueryable object), check those manually, and then include them in the automated tests.