The input floats low (ie, 0v). If your mute line pulls to 0v when the phone is active and you have an empeg (mk2) player then the behaviour will be as you describe.

Put a 1k resistor between 12v (eg, orange wire in empeg harness) and the mute line. This will ensure that when the phone isn't muting, the line will be at 12v and the empeg should continue playing. When the phone becomes active, it will easily overpower this resistor and the empeg will see 0v and mute.

Hugo