It seems the decision is ultimately in the hands of the Authority Having Jurisdiction (AHJ), as long as "equivalent objectives can be achieved" using the device.

National Electrical Code 2008

ARTICLE 100 Definitions

Approved. Acceptable to the authority having jurisdiction.

Authority Having Jurisdiction (AHJ). An organization, office, or individual responsible for enforcing the requirements of a code or standard, or for approving equipment, materials, an installation, or a procedure.

ARTICLE 110 Requirements for Electrical Installations

110.2 Approval. The conductors and equipment required or permitted by this Code shall be acceptable only if approved.

ARTICLE 90 Introduction

90.4 Enforcement. This Code is intended to be suitable for mandatory application by governmental bodies that exercise legal jurisdiction over electrical installations, including signaling and communications systems, and for use by insurance inspectors. The authority having jurisdiction for enforcement of the Code has the responsibility for making interpretations of the rules, for deciding on the approval of equipment and materials, and for granting the special permission contemplated in a number of the rules.

By special permission, the authority having jurisdiction may waive specific requirements in this Code or permit alternative methods where it is assured that equivalent objectives can be achieved by establishing and maintaining effective safety.

This Code may require new products, constructions, or materials that may not yet be available at the time the Code is adopted. In such event, the authority having jurisdiction may permit the use of the products, constructions, or materials that comply with the most recent previous edition of this Code adopted by the jurisdiction.

WARNING

While these devices may or may not be approved by the AHJ, they are not the best solution available. They do not prevent the user from overloading the generator, since the load selection is made by the user dynamically during operation. The better, safer solution, is to install manual or automatic transfer switches. This allows you to pre-select the loads making it a more user friendly solution.

Relax. There really isn't a problem here.

Don't confuse signal ground with safety ground. For these signals, what matters is shared signal ground, and with RCA cables that's provided by the cable shielding. In fact there are good reasons for NOT having signal ground tied to safety ground.

Safety ground is generally not needed in nonportable electronic equipment for the same reason it isn't needed in small electrical appliances outside the bath or shower: they're generally safe by design unless you do something foolish like pouring water into them or running them with the box open. Hence, a two-wire plug is fine.

Similarly, "backward" connection is pretty much irrelevant. The AC is going to a transformer, and the tranformer's output runs the rest of the device. Transformers don't care which way the plug is flipped. the only difference that makes is whether turning off the switch leaves the transformer hot or not, and unless you have the box open that makes zero difference.

Everything is designed correctly. Your mother-in-law is safe.