Hi Tom,
The problem you describe indicates that something is causing the Borderlands audio engine to fail to start. It drives the process that triggers the grains, which is why you don't see grains moving / triggering. I need to get a copy of Music IO to test. As an interim solution, I would recommend checking out Audiomux, which works well and accomplishes the same task of audio over USB. I have used it successfully with Borderlands.
You could also try switching the sample rate of the app to 44100 (or 22050) in settings and launching the app before or after Music IO starts. Mismatched system sample rates and the startup order of apps are often sources of iOS audio system issues, so it's worth experimenting with those variables.
Thanks!
Chris