I have to assume this is a bug, as I cannot for the life of me think of a reason why mute and solo are on at the same time. After I got my project in that state, clicking mute / solo seems to have gone wonkies.
I have included a picture as proof showing both mute and solo on.
I have also included a video to show what happens if you click group mute or solo.
http://dl.dropbox.com/u/24275541/Cubase5-MuteSolo3.avi
I have had this before but sadly, I cannot produce this in a new project as I have no clue under which cercumstances this happens. It does only seem to happen though when I use group folders.
Sadly undo does not affect clicking mute/solo, as I have had this before and if I had remembered the order of clicking I could have undone it by reversing the actions.
But most importantly, does any one know how to reset this?