I found a guy making his own interactive art project and is using an Arduino with PWM output for tone generation.
http://jeremyblum.com/tag/reacXion/
I really liked his final solution for controlling the gain using a digital potentiometer. Here are a couple of other articles about how to use a digital pot with Arduino.
Here is a page about using an I2C digital potentiometer with Arduino
http://combustory.com/wiki/index.php/X9241A_-_Digital_Potentiometer
and here is one about using an SPI digital potentiometer with Arduino
