How do ValueTypes derive from Object (ReferenceType) and still be ValueTypes?

Small correction, C# doesn't allow structs to custom derive from anything, not just classes. All a struct can do is implement an interface which is very different from derivation.

I think the best way to answer this is that ValueType is special. It is essentially the base class for all value types in the CLR type system. It's hard to know how to answer "how does the CLR handles this" because it's simply a rule of the CLR.