Thank you.
I found the solution.
The PIN numbers used in NRF_I2S->PSEL registers are not the Arduino Logical pins.
So if you want to use pin 7, 8, 9 for example, you have to translate into P1.12, P1.13, P1.14 (see picture below)
Which means translates to register values of: 32+12, 32+13, 32+14.
This is according to the NRF specs:
If I didn’t get any audio instead of degraded output, I would have caught this faster. 