At  www.projects.cappels.org Mr. Cappels has many AVR based projects. I was interested in his latest, a  1khz sine wave generator. I ported his C version to the AVR and was able to achieve a nice digital sine wave with 6 bit resolution and a 1.007khz frequency. I used a 6 bit R2R DAC off of PORTD to make it easier. I used his basic schematic http://www.isarapix.org/pix95/1208149627.gif for the DAC. His project is at http://www.cappels.org/dproj/1_kHz_Signal_Source/1_KHz_Sine_Wave_Generator.html
Timer2 interrupts are used to cycle through the sine table at the frequency of interest.


/*
 Copyright 2007 Richard Cappels used with his permission
 www.projects.cappels.org
 This assumes an R/2R DAC (or other DAC) connected to PORTD, and
 Arduino 16mhz clock
 The frequency measured at the output of the DAC is 1.007 kHz.
 ported to arduino by hotcarrier
 output to pd7-pd2 with 6 bits- needs high order pd7 to work
 correctly
 */

#include <avr/interrupt.h>
#include <stdlib.h>

char sinetable [32];
int  i ;

void ioinit (void)
{
  //Initialize output ports
  PORTD = B11111111;
  DDRD  = B11111111;

}

void timer_setup(){
  TCCR2A = 0;
  TCNT2=455;    //455 outputs 1.007khz
  TCCR2B = B00000010;
  //Timer2 Overflow Interrupt Enable
  TIMSK2 = 1<<TOIE2;
}
void setup(){          

  ioinit();
  arraysetup();
  cli();
  timer_setup();
  i = 0;
  sei();

}


ISR(TIMER2_OVF_vect) {

  PORTD=(sinetable[i++]);
  TCNT2=455;
  if(i==32){
    i=0;
  }

}
void arraysetup(void){
  sinetable[0]=127;  // Put 32 step 8 bit sine table into array.
  sinetable[1]=152;
  sinetable[2]=176;
  sinetable[3]=198;
  sinetable[4]=217;
  sinetable[5]=233;
  sinetable[6]=245;
  sinetable[7]=252;
  sinetable[8]=254;
  sinetable[9]=252;
  sinetable[10]=245;
  sinetable[11]=233;
  sinetable[12]=217;
  sinetable[13]=198;
  sinetable[14]=176;
  sinetable[15]=152;
  sinetable[16]=128;
  sinetable[17]=103;
  sinetable[18]=79;
  sinetable[19]=57;
  sinetable[20]=38;
  sinetable[21]=22;
  sinetable[22]=10;
  sinetable[23]=3;
  sinetable[24]=0;
  sinetable[25]=3;
  sinetable[26]=10;
  sinetable[27]=22;
  sinetable[28]=38;
  sinetable[29]=57;
  sinetable[30]=79;
  sinetable[31]=103;
}
void loop()
{

  while (1)
  {

  }

}

How did you know the value 455 would output 1khz? Is it possible to output lower frequencies?

I replaced it with a variable Val, and I tried decrementing it infinitely(Val--) in the void loop() function. The pitch changed, but their isnt much of a range at all. It was also strange because even though I was decrementing the value, the pitch only changed if I did a Serial.println(Val) in void loop().

Interrupts are tricky business, I'm beginning reading about them but so far I am totally confused.

Richard Cappels explains how this work pretty well on the web site referenced at the beginning of my original post.