It looks to me like they sample the audio (hence the reason the audio is going into the virus and the synth engine is turned off)
You tap the tempo of the track to get the virus to collect the correct 16th note lengths and then when you press a key it adds effects , cuts tiny loops to make glitch sounds, reverses 8th/16th clips, retriggers different parts of the loop and by the look of it adds filtering with the knobs.
I had a vst effect that did the exact same thing about 4 years ago (cant remember the name now)
it doesnt have anything to do with midi as midi couldnt alter the audio and neither could it reverse the audio.
edit..
listen to this clip near the end
http://www.youtube.com/watch?v=JPvsg...d.php?p=280244
you can hear it alter the sample "I dont know what this world is comming to" from Dr Bakers KOAS oldskooly techno record.