How to modify this DTMF Controlled Home Automation System?
DTMF is limited to 16 pairs of tones because it was developed for telephone keypads and the largest foreseeable matrix size I guess was 4 x 4 - this means 16 and there is no chance of extending this because the chipsets used are not going to be revamped.

No security - this is just a limitation in the foresight of the guy writing the article you linked - he envisaged 16 appliances that could be controlled remotely corresponding to the 16 keys. Why not use two key-presses to activate an appliance - this technique is only limited by the ability of the user to remember the codes AND why not have it password protected so, when you "connect" thru to the telephone decoder the microcontroller won't allow any activation or deactivation without a 4 digit code being entered.