Rather surprised no one else here has mentioned the known solution to the famous "Variax 500/ 700 high pitched squeal feedback at stage volume" problem, as this was solved back in 2005 by a few of us "early adopters" of Variax technology at the Institute of Noise Forum, where we had to figure all this stuff out by ourselves.

And I should add a firmware update Never solved it.

I have owned a Variax 700, 500, 600, and now a JTV-69

My prior forum posts on this topic are archived at the old ION Forum (im "stevek" over there)

http://www.instituteofnoise.com/FORUM/topic.asp?ARCHIVE=true&TOPIC_ID=19227

* Microphonic Saddles: All is wonderful on headphones or low volume - but plug into a Vetta with hi gain patches at a volume to compete with a rock drummer at stage volume - I have terrible microphonic feedback. I'm presently in communication with LR Baggs regarding this.
EDIT - We have located a solution to this here:

http://line6.com/cgi-bin/ultimatebb.cgi?ubb=get_topic&f=18&t=002008
Circus69 wrote
"I called Line 6 tech support because my Variax 700 w/trem would make a high pitched squealing noise, more so on high gain patches, even at low volumes. There is a ribbon cable from the piezo saddles to the circuit board, connected via a detachable male female jack. The cable passes through a pair of flat "doughnut" RF Ferrite cores which are supposed to remove noise/interference. Most computer VGA monitor cables have these as well. The tech support guy suggested passing the cable an extra time through these ferrite cores (under the DSP board). There is just enough length on the cable to do this. He also asked if I was handy enough to do it. If not, he suggested I get it to an authorized Line 6 repair shop. It took all of 15 minutes and my problem was solved. I guess the internal electronics can produce more noise than expected."

You can see the RF Ferrite cores at the timestamp 1:40, and 3:03 minutes into the Nathan Shane Variax 500 Piezo saddle video here:
http://www.vettaville.com/videos/Variax_500_Bridge_Saddle_Video.wmv"

The Flat Ferite cores which the UNSHIELDED FLAT PIEZO Flex cable  passes thru help to electrically shield the ultra sensitive Piezo pickup (input) path, and help shield this flat Piezo PU flex cable. its important to note, flex cables have been proven to have a high susceptibility to being microphonic without these ferrite cores - its a design fault of the 1st generation Variax 500/700, as these cables can easily pickup the radiatied audio signal from the DSP modeled output signal - and this creates squealing feedback when you play on a loud stage.

On the newer Varixes (Variax 300, 600, Tyler JTV) they abandoned the flat piezo flex cable, and now use bulky fully shielded multicore cables as a solution to microphonic feedback at high volume. 

Back in 2005,  On my Variax 700 I took lots of pics before and after - Ill see if i can locate them. Basically the Flat Piezo flex cable was just long enough to be passed and looped thru the internal ferrite cores TWICE, before mating the end with the gold plated fingers with the white lever operated connector on the DSP board.