Google for "free soundfonts" to find individually recorded instrument notes for pianos, flutes, violins, drums etc.
Soundfont is a common format for sharing free audio files designed for use in samplers. Generally the quality of anything you will find available for free will vary from unusable to reasonable with a few remarkable high quality exceptions.
Most soundfonts will not contain individual audio files for every note. More commonly soundfonts will contain one sample for every octave. In that case your application will need to be able to pitch shift notes to the correct frequency. (This isn't that difficult to do and is the normal approach for samplers.)
Synthesis (generating tones programmatically) - I don't know what your application does but... sine tones are simple sounds and easy to create but will soon become boring to hear. More interesting sounds can be created but sound synthesis code gets complicated quickly. I wouldn't recommend writing your own synthesis code unless it is a core part of your application. IMHO it would be far better to use sample playback or use MIDI (if Windows Phone 7 has a good MIDI playback library).
Soundfont Archive