> can c# functions (external) be added directly in Content or do they have to be called from XSLT functions and then XSLT fn added to the page in Content.
They can - the return type of your function can influence things though. We will only show your function in the Visual Editor view if it returns a XhtmlDocument or a Control (asp.net control). If you return a string or some other type, you need to switch to code view and then insert your function there.
About the name space error, try adding a <msxsl:assembly name="MyCompany.HelperAssembly" /> for your own assembly (not just System.Web).