Hi Michael,
Funny thing, if I enable Hifiberry DAC, MPD will show it as active
This is not funny, this is normal.
The Hifiberry DAC does not use any I2C connection as for example the DAC + and Digi +.
If your I2C connection does not work, or your card uses a different I2C address the driver will fail to load.
Can this be a hardware fault?
Yes it can.
You can try the Hifiberry test image.
https://www.hifiberry.com/files/images/hifiberry-testimage.zip
Frank