Are 2 streams really needed?
Not without having to reinvent a lot of other things and make it more complex, no. This solution looks to be the best to me. You even use using correctly, which is one of my frequent nitpicks. However, if you want to simplify that bit of code, you might be able to help it with an extension method like so:

        List&lt;string&gt; list;

        using (var s = new MemoryStream(myFile))
        {
            list = s.ReadLines().ToList();
        }


...

    public static IEnumerable&lt;string&gt; ReadLines(this Stream s)
    {
        using (var sr = new StreamReader(s))
        {
            while (!sr.EndOfStream)
            {
                yield return sr.ReadLine();
            }
        }
    }