WB8IMY solved it.

Turns out I have found the answer. Apparently the input device must “look” like a real microphone to the operating system. Otherwise, it will not reroute the audio to the application. In my case, the device has an isolation transformer, which looked like a dead short to the iPad. I added some resistance in series and that did the trick.

Steve

via Apple – Support – Discussions – Odd Microphone Problem ….