Yes that's one of the things to watch out for, though it's not limited to row locks of course.

There's nothing wrong with using a CLR function to work around this (the EXTERNAL_ACCESS permission set is required, but that's not something to worry about). The other solution, in SQL Server 2008, is to use a loopback linked server, using sp_serveroption to set remote proc transaction promotion off. This allows autonomous transactions too.

I also wrote an article about this last year, but decided it would not be of interest to sufficient people to make it worth publishing.

Paul