I am currently working on a game in XNA 4.0 where I want to implement 2.75D, like in Paper Mario. I feel like it has something to do with z-buffering a Texture2D and drawing that, but I really have no idea where to start. Any help would be greatly appreciated.
Rendering a 2D sprite in a 3D space could be handled as a specific case of rendering a 3d object. The 3d model being a flat rectangular shape that is textured with the sprite in question. This is how I would suggest you handle your sprites.
I think this tutorial gives an example:
The way bullets are handled there (2d images in 3d space) is what you are looking to do with characters in your game.