Extending C# .NET application - build a custom scripting language or not?

I've heard very good things about IronPython for exactly this type of scenario. I'd certainly risk spending a few hours on a quick proof-of-concept, to see how it pans out.

Michael Foord will happily wax lyrical about the success of IronPython in similar cases (most specifically for him, for spreadsheet savvy users), and his book covers (IIRC) a few pointers about hosting it from .NET.

You may want to look at Boo, another managed language that runs on the CLR, and which is particularly well suited to build DSL and make your applications scriptable.

The compilation pipeline is directly extensible from the language itself.

Reading the Boo Manifesto is a good starting point if you want to learn more about it.

[Edit] I forgot to mention that Ayende Rahien is writing a complete book on the topic: Building Domain Specific Languages in Boo

It might be worth considering PowerShell for this sort of task. That can call into .Net just as any of the DLR languages, and has a more natural language type chunking for tasks in its cmdlet (command-let) concept. You have to write the cmdlets in a compiled language at v1 -- in v2 which is being rolled out starting with Win7 and working to older releases in the next few months (v2 for Vista/Win2k8 is at RC now), you can build those in PowerShell directly.