In theory you can build the entire level in some 3D editor (MAX, Blender etc), export it as a single model and draw it using the methods explained in XNA's 3D game tutorial.

This is not what you want, unless we are dealing with very small spaces.

Usually the world geometry is partitioned for (mainly) the following reasons:

1. Ensure you do not have to push more geometry than necessary to the hardware. There is no poing drawing the entire level if you are inside a room with all the doors closed.
2. Limit the number of polygons you need to test for collision detection etc.

The two techniques used for this purpose are binary space partitioning (BSP), used by doom/quake and friends, and portal/cell (of Unreal fame). There are advantages and disadvantages to both techniques. Both are a substantial amount of work to implement from first principles.

I recommend you base your work on an existing engine that does this for you.

In theory you can build the entire level in some 3D editor (MAX, Blender etc), export it as a single model and draw it using the methods explained in XNA's 3D game tutorial.

This is not what you want, unless we are dealing with very small spaces.

Usually the world geometry is partitioned for (mainly) the following reasons:

1. Ensure you do not have to push more geometry than necessary to the hardware. There is no poing drawing the entire level if you are inside a room with all the doors closed.
2. Limit the number of polygons you need to test for collision detection etc.

The two main techniques used for this purpose in indoor scenes are binary space partitioning (BSP), used by doom/quake and friends, and portal/cell (of Unreal fame). There are advantages and disadvantages to both techniques. Both are a substantial amount of work to implement from first principles.

I recommend you base your work on an existing engine that does this for you.