I don't have much experience with running GB/C games in VBA-M, and Kirby's Dream Land 2 is the only one I've got at the moment, but I was attempting to play with the sound muted just now, and no luck. Even though the Mute option was checked (and worked fine for GBA games), sound played anyway, the only way I could get it to shut up was to turn sound off outright, which of course makes the game run at ridiculous speeds until you throttle it. Even so, the emulator is still running at 108-110%, which, while not particularly bothersome, probably isn't exactly optimal.
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My setup right now is to use SGB, with the border displayed. Switching to other Game Boy modes didn't help any. Throttle is "100%", frame skip of 0. Audio is turned off, but is nominally DirectSound, sync game to audio is checked but obviously pointless with audio off, volume is at Mute, 25%, sampling rate is 44100Hz. I'm running Windows XP SP2, and the March 10 precompiled binary (461). If there's any other info that'd be useful, feel free to ask.
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Summary: "mute" doesn't work on GB games.