Reading from memory stream to string

If you'd checked the results of stream.Read, you'd have seen that it hadn't read anything - because you haven't rewound the stream. (You could do this with stream.Position = 0;.) However, it's easier to just call ToArray:

settingsString = LocalEncoding.GetString(stream.ToArray());

(You'll need to change the type of stream from Stream to MemoryStream, but that's okay as it's in the same method where you create it.)

Alternatively - and even more simply - just use StringWriter instead of StreamWriter. You'll need to create a subclass if you want to use UTF-8 instead of UTF-16, but that's pretty easy. See this answer for an example.

I'm concerned by the way you're just catching Exception and assuming that it means something harmless, by the way - without even logging anything. Note that using statements are generally cleaner than writing explicit finally blocks.