I emailed Jens Schoenfeld and got a pretty interesting answer back.
Jens Schoenfeld wrote:
Many C128
computers have serious timing problems that I
haven't been able to solve with the MMC64 yet.
The Retro Replay works fine because it uses a
much older (and slower) logic chip. The ultrafast
logic chip on the MMC64 is "too fast" for a few
C128 models. Sometimes it helps to re-install the
metal shield in the C128 (many people remove that), this reduces GND noise.
Further, the clockport is re-mapped to $de20 if a
Retro Replay is detected in the pass-through port of the MMC64.
It's all relevant information, however since I'm on a C64 this is probably not related to my problem. I've emailed back and currently waiting for response. I'll keep you posted.