as far as i can tell the only way to play audio on silverlight 3 is using the mediaelement. I'm comparing using flash vs silverlight for a web app which will allow the user to interactively turn on/off multiple tracks from a single audio compositions.
You can also use the MediaStreamSource (with MediaElement), to have finer grained control over your audio or to modify or procedurally create your audio. Sadly though, you need to have an intimate understanding of audio and create your own audio control classes to detect the sound levels. I would search the net for examples of how others are using MediaStreamSource with audio.
I am unaware of limitations with how many audio tracks you can play at a time. I'm not sure if there is an artificial limit or if you are just limited by system resources.