ncbeanhead,
Sorry to hear of your problem. As you know, we do not grout over grout. Just doesn't work. If the original grout was done well, you should have been able to apply a grout colorant, most likely. Is the 2nd layer of grout coming off completely, what if you rubbed it off with one of those 3M scrubbing pads?
You said the grout was mixed with a sealer. Are you sure it wasn't a polymer additive instead? I doubt it was a sealer. Tell me exactly which grout and what this "sealer" is. Need specific names.
Also in the likely event you'll have to remove the old grout, be aware that the grout removal attachment that I've seen is 1/8". You said the grout lines are 3/32", not good. The best multi-tool is probably the Fein, but it costs lots of $$$ if you're not into many DIY projects. Also consider the Craftsman multi tool from Sears. I think I paid about $79 for the basic kit and got reward point too. Here it is now for $72.
http://www.sears.com/craftsman-2.0-a...-00923465000P?
Jaz