What exactly is the problem with the sound? At one point you say it "cut out," elsewhere you say it doesn't come on when the engine is addressed. Did the sound just stop working completely and now it won't come on when you start up?
Are you sure you did the correct number reset according to K-Line's instructions? The reset procedure for a K-Line engine with cruise is different from a normal TMCC reset.
There is a known bug in the K-Line Shay where the sound cuts out above a certain speed and only will come back on when you slow way down. Then you can speed up again and the sound will stay on unless you pass the threshold speed. When K-Line was still around, mine went back to K-Line and had the boards replaced and it still did it. Finally the service manager found out it was a bug and the engineers hadn't bothered to tell him about it. He was a bit P.O.'d, to say the least. I got to know the guy pretty well while we were trying to figure that one out.
I wonder if the same problem that is causing the speed runaway might also be fooling the sound system into thinking it's going fast when it really isn't. I don't know enough about TMCC to be sure if that's physically possible, maybe the Gunrunner can figure that out. The K-Line Shay is a kind of unique problem because the system is kind of a mouse job - the TMCC boards were modified to fit in the small space and the sound board itself is a fiddled version of the one from a 4-4-2, since Lionel wouldn't sell K-Line a proper Shay sound board. The Lionel sound boards for a Shay are now available from Lionel; I installed one in mine and it sounds a lot better. I got mine from OGR member Boxcar Bill, AKA Modern Toy Train Parts.