Just a thought:
It seems very doubtfull that they developed their own "CD-standard", so my explanation why you can't play those cd's in regular players would be: that those cd's are fake. The only "usefull" part would be the watermark. So MAYBE, the music is stored on a Harddrive somewhere in the player and the cd's are just "keys" to unlock a certain number of songs. The updates (new songs) could be "transferred" by muzak's employees.

But like I said, it's just a thought

If they do developed their own standard, I think it would be based on a laser with more power. The "transparent" cd doesn't reflect the laser enough like normal cd's, so standard players won't be able to read. The watermark would then be to make it impossible to insert home-made cd's, like you tryed.

But hey, I'm just giving possibilities here, so don't shoot me if I'm wrong