I am afraid I haven't composed since long ago. Last tries where using Psycle years ago and nothing of that was chip related. Then I tried to learn sequencers (Cubase, Ableton Live, Reason) but never felt comfortable with them and quit soon. "Recently" I discovered reViSiT, a Impulse Tracker clone for vst hosts with midi in/out integration with host. But didn't use it too much (just testing). Now I am waiting to get right mood and time to start again with sequencers and reViSiT. Also I don't discard use again old trackers and C64/SID hardware emulators but not really seriously.
I would be looking at the Raspberry Pi for this type of solution. It runs linux which has plenty of sequencing programs, apps like jacker, psycle, vst support, etc. The arduino is 16mhz. The raspberry pi is 700mhz. It's not realtime, but it will be good enough. With the arduino, you have 8 bits and 16 mhz. At best an arduino solution will sound like a commodore 64. Raspberry pi has 5.1 surround sound.
try out Psycle , they have a really good guide on the website. and download this vst Magical 8 bitplug. or you can buy a hacked gameboy. or, hack it yourself. ;)