This works perfectly. The syntax of the "where" is what I was missing. The following URL may be of help to someone else who needs to convert a relational dataset to a nested ObservableCollection. My intent is in the ViewModel of a MVVM pattern with this particular app.
http://stackoverflow.com/questions/6359980/proper-linq-where-clauses
The format of "}).Where(app=>app.strAppType==apptype.nvarAppType)" is what was throwing me.
this.ocApps = new System.Collections.ObjectModel.ObservableCollection<Models.ApplicationTypesModel>(this.dsApps.tAppTypes.AsEnumerable().Select(apptype => new Models.ApplicationTypesModel
{
AppType = apptype.nvarAppType,
Apps = new System.Collections.ObjectModel.ObservableCollection<Models.ApplicationModel>(this.dsApps.tApps.AsEnumerable().Select(apps => new Models.ApplicationModel
{
idAppId = apps.idAppId,
strAppName = apps.nvarAppName,
strEnvironment = apps.nvarEnvironment,
strAppType = apps.nvarAppType,
dtLastPrivACCertDate = apps.dtLastPrivACCertDt
}).Where(app=>app.strAppType==apptype.nvarAppType))
}));