a) I don't believe in the "muscle loss" theory assuming your diet and other training isn't completely idiotic. I just don't see it.
b) look at Mahler's log for proof. He gained muscle.
c) Here's a study supporting my recommendation (from my soon to be released fat loss manual:
Bryner RW, Ullrich IH, Sauers J, Donley D, Hornsby G, Kolar M,Yeater R.
Effects of resistance vs. aerobic training combined with an 800 calorie liquid diet on lean body mass and resting metabolic rate.
J Am Coll Nutr. 1999 Apr; 18(2):115-21.
This was a significant finding.
The authors split the subjects into two groups: an aerobic training group and a resistance training group. The aerobic group performed 4 hours per week of aerobic exercise. The resistance training group performed 2-4 sets of 8-15 reps. 10 exercises, three times per week (the resistance program was very basic, but began with 2 sets of each exercise and progressed to 4 sets of each exercise).
The findings showed that V02 max increased equally in both groups.
Both groups lost weight, however the resistance training group lost significantly more fat and did not lose ANY lean body mass, even at only 800 calories per day. This is significant as this type of extreme diet, one would assume, would result in a loss of lean tissue. Indeed, fat loss programming in general has been criticized for the possibility of lean muscle loss. This study shows that even on a paltry 800 calories muscle mass, (and therefore metabolism) can at the very least be maintained as long as a resistance training program is followed.
Additionally, the resistance training group actually increased resting metabolism compared to the aerobic group which decreased metabolism.