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Does the .NET’s Virtual Machine compiles the CIL bytecode (and then execute the code at the lowest level – CPU assembler), or it is an interpreter (that reads the following instructions and execute them) ?
Yes, it’s a component of the CLR called JIT (Just-In-Time compilation) that converts the Intermediary Language code (emitted by the compiler of the programming language) into a machine code.
There’s no interpreter as there is in the dynamic languages such as Ruby, PHP, Python.
UPDATE:
As pointed out in the comments by @Nick Craver since the addition of the DLR in .Net 4 brings the possibility of using dynamic language concepts in the CLR.