The IR data from the receiver is sent as a "phantom" signal over the two audio pairs and due to the way balanced transmission works this causes no interference. The fact that the audio is making the IR emitter flash indicates that something has upset the balanced nature of the circuit. It could be a wire open circuit, or shorted to ground or another wire if the cable has been crushed.
Another indication of this fault would be that you would most likely hear a pipping sound in sympathy with the mimic LED on the IR reciever when sending IR.
The fact that the IR emitter is blinking all the time is what is causing all the problems with the SKY box as it cant decode genuine IR signals due to the excess noise.
A Pacelink RF2 is definately more reliable and neater than an IR emitter but whilst the fault condition exists you wont cure your problem
I have two Sky+ boxes in use via KAT5 and both use IR emitters with no problem. One of the boxes also has an RF2 link from Tivo which is IR controlled over KAT5
Hope that helps