Was the vendor's concern that a customer of yours could just pull your royalty-free license out of your uncompiled source and then gain access to their product without paying for a license? So, you would be distributing their registration key for free use with every purchase?
That sounds like a legitimate concern. If someone was distributing a valid registration key and fully-functioning application for one of our products (in exchange for a single royalty-free license), I'd give a blanket 'no' too.
Considering it's C#, and a "compiled" DLL is just preassembled bytecode anyways, I can't imagine it would be much more work to disassemble the DLL anyways...
That sounds like a legitimate concern. If someone was distributing a valid registration key and fully-functioning application for one of our products (in exchange for a single royalty-free license), I'd give a blanket 'no' too.