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This is part of the Muted Switching feature to remove the occurrence of pops for certain pedals (usually pedals using a voltage charge pump). The feature can be toggled ON or OFF by holding down Switch D before powering up.

Can I use the ML5 to switch effects in front of the amp as well as in the amp FX loop?

Yes, it is possible. There are 5 loops on the ML5, so assuming you wire it like this:

Guitar --> ML5 IN
ML5 Loop 1 Send  --> Front loaded FX 1 In
Front loaded FX 1 Out --> ML5 Loop 1 Return
ML5 Loop 2 Send  --> Front loaded FX 2 In
Front loaded FX 2 Out --> ML5 Loop 2 Return
ML5 Loop 3 Send  --> Amp In
Amp FX Loop Send --> ML5 Loop 3 Return
ML5 Loop 4 Send  --> FX Loop pedal 1 In
FX Loop pedal 1 Out --> ML5 Loop 4 Return
ML5 Loop 5 Send  --> FX Loop pedal 2 In
FX Loop pedal 2 Out --> ML5 Loop 5 Return
ML5 Out --> Amp FX Loop Return

It will work.