Calling Console.ReadLine() in the delegate is bad because if the user doesn't hit 'enter' then that call will never return. The thread executing the delegate will be blocked until the user hits 'enter', with no way to cancel it.
Issuing a sequence of these calls will not behave as you would expect. Consider the following (using the example Console class from above):
System.Console.WriteLine("Enter your first name [John]:");
string firstName = Console.ReadLine(5, "John");
System.Console.WriteLine("Enter your last name [Doe]:");
string lastName = Console.ReadLine(5, "Doe");
The user lets the timeout expire for the first prompt, then enters a value for the second prompt. Both firstName and lastName will contain the default values. When the user hits 'enter', the first ReadLine call will complete, but the code has abandonded that call and essentially discarded the result. The second ReadLine call will continue to block, the timeout will eventually expire and the value returned will again be the default.
BTW- There is a bug in the code above. By calling waitHandle.Close() you close the event out from under the worker thread. If the user hits 'enter' after the timeout expires, the worker thread will attempt to signal the event which throws an ObjectDisposedException. The exception is thrown from the worker thread, and if you haven't setup an unhandled exception handler your process will terminate.