... as a result no audio is heard. Muting busses, on the other hand, works as expected. This happens when using VE both as a plugin and as a standalone app. Is anything wrong with my setup?
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VE: Soloing busses doesn't solo channels that feed them
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it shouldn't solo the other channels. it will mute them, soloing this bus. that's what a solo button does, mute all other channels (that aren't soloed already).
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you don't. generally a bus is to create a group, say you want the same compression on several things at once, you put that comp on a bus and assign channels to that, but you retain the channels as separate entities before the group; OR, you create a bus for an effect, say a convolution reverb, and send channels signals to it variously; that bus functions like a return channel in the studio mixer paradigm, ie., to control the level of the result of the send(s).
the former, as you have observed will mute what 'feeds' it as that bus is the necessary output. While soloing it does nothing but mute the *inputs* to it as they are separate channel entities of their own.
I typically create a bus in VE Pro just as a submix strategy* to cut down on the amount of channels returned to cubase; or effects busses such as I want some compressed signal mixed with the dry as the comp as an insert is too strong, or reverb sends, amp sims etc. I solo or mute rarely in VE Pro and just to check things by isolating something problematic. The instrument channels are their own busses, though for instance, *'trombones' might all have the one output bus so I see just the one result in Cubase's mixer, but I have the ability to automate all the levels for the 'bones that inform that one output.
HOWEVER what you can do is: create an audio input (the microphone icon), and send an output from an instrument that supports that (I don't think VI does), eg., Kontakt, and soloing that channel does solo the instrument that goes specifically to that audio input, as there is but the one possibility.