Well, here's more to this issue... and step by step what I did.

I have a project that is, at the moment, real MIDI combined with two VSTs (Battery 3 and MOTU Symphonic). Battery 3 has a drum kit loaded and MOTU has one sound bank loaded (a piano). There are 4 total tracks, one MIDI, one MOTU, two Battery 3.

It's an early work and I've not yet progressed much on it yet. Anyway, here's what I did that led up to the problems..

1) I progress to the point where I've got four total tracks (one MIDI, one MOTU / Piano, two Battery 3 drum kit tracks). It's working great until...

2) I have another partial project I had been previously working on and I wanted to copy and paste some MIDI segments from that project into this one. It should be simple enough... but..

3) With the current project open, I open the other project. Opening more than one project at the same time was always unstable in SX 3 (and is also a known issue), but I'd hoped it had been fixed in Cubase 4. Apparently it hasn't...

Anyway, I don't intend working on the other project. I just want to copy some portions from it and paste it into my current project. I copy the relevant portions to the copy buffer. Then, I close the project.

Here's where the fun begins...

4) After the other project closes, the VSTs must reload again in the first project. The first time Cubase 4 tries to do this, it simply just hangs trying to load the one sample bank from MOTU leading to 'Application not responding' and practically killing my machine (I can't even bring up task manager). I end up killing Cubase 4 from the 'Application not responding' panel that appears... and that takes a while to happen.

5) So, I make sure it's all dead and start it back up again. I try the process again. The first time I tried, I copied and then tried to close before the paste. Because of the crash, I didn't get anywhere. So, this time I decided I would paste (then save the file) BEFORE trying to close the older project. At least that much worked. But, again.. I close the project after the paste...

Again, more fun begins...

6) This time the VSTs actually load... except.. NOTHING IS WORKING. The application cursor bar moves across the screen and the bars in each of the tracks jump like it's actually playing something, but the VSTs don't play and neither does the MIDI. So, the application is completely hosed. I close and restart the app. The system is STILL in this state. The cursor bar moves, but no sound from either the VSTs or from MIDI. With the MIDI I can see that nothing is being transmitted.

So, now, I'm going to have reboot to reset whatever communication system is hosed within Cubase 4.

I also find that I randomly see 'Application not responding' when simply trying to open a single previously created project containing VSTs. I'll then have to kill Cubase 4. This may also be what's leading to the broken MIDI communications. I also found a workaround to the hanging VST loading issue, but I have no idea why it works:

1) Open Cubase 4
2) Create a new blank project
3) Open and close each VST one at a time making sure to close all VSTs before step 4.
4) Close the 'new blank' project
5) Open the previous project using those VSTs.
6) All of the VSTs load without issue.

If I leave it to chance without following the above steps, it's about a 50/50 chance the application will go into 'Application not responding' mode and I'll have to kill it. This may leave the application in 'no sound' state as I just showed.