Well, i've gained a little muscle since i've been on Atkins (and i STRESS a little) but i really don't lift weights. I have some 15lb hand weights and i do pushups. I have gained some muscle in my legs as well. The only time your going to shoot yourself in the foot with Atkins is when your return to an old style of eating. People who do Atkins are making lifestyle changes to their diets. IMHO, cyclical keto diets should be used by those who are heavy into training and are planning on body building. I'm kind of biased on a lot of other diets, but i'm undiagnosed Hypoglycemic so you have to understand where i'm coming from. Its taking extreme measures to get me heathy, and i often forget that not many are in the same boat as me.
Theres no reason for anyone to LOSE muscle while in Ketosis. BUILDING muscle is very hard since you don't have a glycogen store, but the only reason your body has for burning muscle is because it needs an energy source. 150 grams of fat/day is just as good of an energy source as 150 grams of carbs/day.
Actually, the fat has been better for me than the carbs, but, like i said, i'm hypoglycemic.