The graphics and animations for Castle Crashers were definitely made with Adobe Flash. But as far as I know X-box doesn't directly support Flash and Adobe Air technology. I love flash for 2D game development and I wonder how to do the trick. And an additional question: are there easy-to-use libraries for adding gamepad support to Adobe Air app.
So it looks as though the game was designed and made in flash and then the guys at Newgrounds wrote a custom parser and renderer in c++ to run on the xbox (source: http://www.newgrounds.com/bbs/topic/1034102). However, to do this in general, it is possible to render the vector graphics from the flash files in a 3D renderer (After parsing and triangulation/etc of course). This is not something that would necessarily be easy for one person to do, but it is not impossible and it should be able to be done with XNA with enough dedication.