Now that the Unreal Development Kit for Unreal 3 engine is free I am thinking about utilizing it for an appication. Do you think it is possible to emebedd a Unreal 3 powered 3D window into a .NET (WPF or Windows Forms) and control parts of the gameobjects therein using c#? Is the engine plain c++? Or COM or is there a .NET wrapper or something?
The UDK does not give you native access to code, sorry. Instead, it's script-level. As such, you would not be able to wrap it, etc. for use in .NET.
Unreal was not designed to be embedded in another application, it is a very large piece of software with special, very specific purposes. Even if you had a full development license, performing what you're asking would be a mountain of a task.
I would suggest looking into an XNA-based game engine for use with C#.