In my experience, the signal source needs to be connected to whatever cable is being plugged into the headset jack. Sometimes, it seems to help to even have a live signal on the plug when it is plugged in. Otherwise, the iPod may not recognize that an input is available on the headset connector. It may still take one or two tries plugging in the cable before the iPod switches to the headset for input (it has nothing to do with the software, e.g. SignalScope, since the OS automatically determines where the audio is coming from).
Ben