Two questions - How old was the Karo and when did you mix it in?
I've had this happen before, but the rubbery pieces were actually from overheating the marshmallows. If you heat them too much, they begin to crystallize somewhat, and you end up with rubber-like pieces in your fondant. Perhaps this is what happened to you as well.
I agree with Jardot. The only times I have problems with MMF I when I liquefy the marshmallows by overheating. The marshmallows should be melted, but not runny and watery.
Wait a minute. The recipe I use for MMF does not have corn syrup in it. The candy clay recipe I use does, but not MMF.
Sorry.
I've made mmf but never had that problem...sounds like it's time to switch to Michele Foster's Fondant! 
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