Also the 4N28 optocoupler did not work in any configuration for me. I could verify the chip itself was working fine using the test circuit on this page  and I verified the Arduino Rx worked fine and MIDI signal was fine. I did finally get things working with the CNY17-4 optocoupler though.
Here is the configuration that ended up working for me:
Arduino Duemilanove connected to Macbook USB
M-Audio Keystation 61es
Schematic in the original post of this thread, substituting CNY17-4 for 4N28
Really strange about the 4N28. No idea why it would not work in this configuration other than some sort of variation between manufacturers .
Test Circuit, see #4:http://www.technogumbo.com/projects/Learning-to-Use-an-Optocoupler-or-OptoIsolator/
 4N28 by VISHAY SEMICONDUCTOR. I bought mine here:http://www.newark.com/vishay-semiconductor/4n28/optocoupler/dp/88K1389