Can anyone please confirm this, the culprit seems to be the "Mute Signal" in the Tuner mode. When engaged, for some reason, it changes the KPA tone for the worse making it sound brittle and harsh and losing all dynamic response. It sounds like a (ugh) Line6 POD then. I've tested it with a really bright pickup (bridge DiMarzio Virtual Solo on my Strat), it's possible that with different pickups the difference is less apparent.
The reason why a System Reset solves the problem is because it disengages that option.