If a user needed to write any new functions, would Zylaphon be able to interpret the code in real time (straight out of text files) or would they need a C# compiler?
Extending Zylaphon's functionality within the existing infrastructure requires writing new Agents which requires A C# compiler. MS is developing a compiler as service model expected to be deployed in about 4 years. At that point source could be loaded and executed at runtime. For now MS provides C# Express free of charge and I have found this C# IDE both stable and a pleasure to use.
Note that Agents are not intended to extend the infrastructure and are usually focused on calls to the music API. It should be possible to create sets of agents, compile them into modules and load them as plug-ins. Extending the infrastructure -- adding new channel types for example -- is a developer level undertking.