I say this in response to a lot of questions: Don't forget that the (managed) source code to the framework is available. You can use this tool to get it all: http://www.codeplex.com/NetMassDownloader
Unfortunately, in this specific case, a lot of the implementation is in native code, so you don't get to look at it...
They definitely use pool threads rather than a thread-per-timer, though.
The standard way to implement a big collection of timers (which is how the kernel does it internally, and I would suspect is indirectly how your big collection of Timers ends up) is to maintain the list sorted by time-until-expiry - so the system only ever has to worry about checking the next timer which is going to expire, not the whole list.
Roughly, this gives O(log n) for starting a timer and O(1) for processing running timers.
Edit: Just been looking in Jeff Richter's book. He says (of Threading.Timer) that it uses a single thread for all Timer objects, this thread knows when the next timer (i.e. as above) is due and calls ThreadPool.QueueUserWorkItem for the callbacks as appropriate. This has the effect that if you don't finish servicing one callback on a timer before the next is due, that your callback will reenter on another pool thread. So in summary I doubt you'll see a big problem with having lots of timers, but you might suffer thread pool exhaustion if large numbers of them are firing at the same timer and/or their callbacks are slow-running.
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