Leslie Sanford has a three-part article on CodeProject detailing a .NET State Machine toolkit.

Part I is an introduction.
Part II details more of the inner workings.
Part III details how to use the toolkit and sample app to generate your state machine code.

He starts with a very simple two-state state machine (light switch), and progresses through a simple hierarchical state machine before getting to the fun part and showing you what’s under the covers.

Certainly there are tools out there you could spend thousands of dollars on to do this.  But this is a fairly simple and elegant implementation that hits the basics and has the flexibility to have some decent power.