unfortunitly nothing seems to correct the issue so maybe there's just something particular about this PC setup that X-wing doesn't like.

I tried renaming the SETMUSE file and then running it again, same result and I double checked the SB16 setting in the autoexec.bat and they match the setting in the X-wing sound setup. I'm at a loss at this point as I said, every other game I've tested seems to work without issue.

Unfortunately I lack the equipment to replicate this exact setup, I don't have an MT-32.

I currently can only offer hypothetical solution, they are unlikely to work, but as long as other avenues don't show themselves they might worth a try:
1. Check the environment variables before running the game after the setup and a restart, it is possible that the setup sets an environment variable that the game parses that makes the sound work. (You can check with running "SET" without any arguments which environment variables are set)
2. I have owned a creative sound card which acted weirdly when installed on IRQ5, after moving it to IRQ7 it worked fine, I guess that particular card for some reason "disliked" IRQ5 (I have mostly been able to rule out resource conflicts as I tried it in two motherboards), unlikely to be the same issue as multiple games had problem with that card when set to IRQ5, but it might worth a try.
3. If you have Tie Fighter it has a different version of iMUSE which might work, if it works then you can try copying the configuration file from Tie Fighter to X-Wing.