I hate to sound like that little Smurf that runs around all the time going "It'll never work", but I don't think the Free Running Oscillator idea would work either.

Since the baud rate and the Mark frequency are the same, you only get 1 cycle of the 1200hz to represent a mark. So it must start at the zero crossing point and also finish at the zero crossing point. Same thing applies to the space frequency, except that there are approx. 2 cycles per bit.

Switching in and out a free running oscillator will start the cycle at a random position, were ever it happens to be at the time it's switched.

On the receiving end it's not really looking for a frequency that can be filtered like a lower speed FSK would. The sinewave is turned back into a squarewave and during 1 bit period if it receives 1 pulse it's a mark, 2 pulses and its a space. Bad alignment of the cycles will completely confuse the reciever.

Best regards,
  The doom and gloom guy,
  Darrel Taylor