And that is an interesting approach - essentially breaking the ground loop after the simple splitter?
Yes. The transformer basically just "cuts" the metallic connection between the two sides, so the ground part of the right hand side is not connected to that of the left part. (Naturally you can't just use any transformer, you need ones that are good getting the audio frequency AC across and have a reasonable impedance for the guitar signal.)
I just looked at the Radial ABY box that was referred to earlier in the thread. If you look at the schematics posted on their page, they do in essence the same thing I suggested, they have a transformer for one of the outputs and direct connect to the other:
http://www.tonebone.com/re-bigshot-aby-detail.htm
(Very confusing that they just use the ground symbol for everything on that little drawing. The whole point is that for "OUT-B" those grounds (the connector and the transformer) are isolated from the ones on the left and "OUT-A".)
