The Audiere library makes this extremely easy to do. Here's a nearly complete C# program to generate the DTMF tone for the "1" button:
AudioDevice device = new AudioDevice();
OutputStream tone1a = device.CreateTone(697); // part A of DTMF for "1" button
OutputStream tone1b = device.CreateTone(1209); // part B
tone1a.Volume = 0.25f;
tone1b.Volume = 0.25f;
tone1a.Play();
tone1b.Play();
Thread.Sleep(2000);
// when tone1a stops, you can easily tell that the tone was indeed DTMF
tone1a.Stop();
To use Audiere in C#, the easiest way to get up and running is to use Harald Fielker's C# binding (which he claims works on Mono and VS; I can confirm it works in the both full version of VS2005 and using the separate Express 2008 versions of C# and VC++). You'll need to download the Win32 Audiere DLL, lib, and header (which are all in the same zip) and you'll need to build the C# binding from source using both VC++ and C#.
One of the nice benefits of using Audiere is that the calls are non-blocking. You don't have to wait for tone1a to stop playing before you start tone1b, which is clearly a necessity for playing complex tones. I am not aware of any hard upper limits on how many simultaneous output streams you can use, so it's probably whatever your hardware/OS supports. By the way, Audiere can also play certain audio files (MP3, WAV, AIFF, MOD, S3M, XM, IT by itself; Ogg Vorbis, Flac, Speex with external libraries), not just pure generated tones.
One possible downside is that there is a slightly audible "click" as you start or stop an individual tone; it's not noticeable if you add one tone to an already playing tone. The easiest workaround I've found for that is to slowly ramp the tone's volume up or down when you're turning the tone on or off, respectively. You might have to play around with the ramp speed to get it to sound "just right".
Note that Audiere is LGPL-licensed, and the binding has no license attached to it. You'll have to consult your legal team or try to get a hold of Harald if you want to use his binding in a commercial product; or you could just make your own binding and avoid the hassle.
@Tom: Since there is no specific license attached to Harald's library, I'm not sure what implications would come of hosting it; however, I believe I can at least give you fine detail on exactly how my libaudieresharpglue project is set up.
Using Visual C++ Express 2008, open up bindings/csharp/libaudieresharpglue/vc8.0/libaudieresharpglue.sln. VC++ will automatically convert the solution to a VS9 solution.
In another folder, you should have the Audiere package from Sourceforge. Under your VC++ project properties, go to Configuration Properties > C/C++ > General, and make sure you have path/to/audiere-1.9.4-win32/include in your "Additional Include Directories." Then, in that same window, go to Linker > General and make sure you have /path/to/audiere-1.9.4-win32/lib in your "Additional Library Directories." Then, you should be able to build the project (preferably in Release mode) and this output libaudieresharpglue.dll in your vc8.0/Release folder.
Next, open up Visual C# Express 2008. Open up bindingscsharpestvc8.0AudiereCSharpTest.sln and let it convert the solution. The project should build fine, but then you will get an error when you run it. That's fine; in your csharp/test/vc8.0/bin/Release folder, you need to add both libaudieresharpglue.dll from the VC++ solution and audiere.dll from the package from Sourceforge.
Now, you should be able to build and run AudiereCSharpTest. Note that by default, #define stream_test is not commented out at the top of AudiereTest.cs, and that will reference a file that is not on your hard drive. You can simply comment out that #define and uncomment noise_test or square_test.
That should cover it; if I missed any details, hopefully they are small enough to get by on your own :)
