I got this working after seeing my mod matrix destinations greyed out, also.
This was never explained very well, and there is certainly a specific order in doing this.
1. Lay your notes on Track 1.
2. Copy and paste Track 1 to another track.
3. Set mod source as that new track.
4. Set mod destination to Seq Out (choose your appropriate output# and channel#), Out1Ch2, for instance. Use either the sequencer or the mod matrix for this, and ignore it being greyed out.
5. Now you have to manually go in and raise the velocity on the individual steps of the *new* track, since when track 1 was copied to another track, the velocity data was not copied.