Hey Dave. Ok, let's try to solve this one. There are two things I'm not sure about in your setup, by just watching the video:
• Have you enabled the IAC Bus 1 in Applications -> Utilities -> Audio Midi Setup (Window -> Show MIDI Window), by double clicking on "IAC Bus 1" and checking the "Device is online" box? Double check on that one.
• If you open up the document and it's Environment in Logic (cmd-0), and choose "All Objects" from the Layer dropdown (top left), the virtual cable routing should look like in the attached screen shot (resolution issues might mess up your particular Environment object placements here, but just move stuff out of the way - the routing stays the same). Then check the routing from the big ass "Physical input" object (on the left) to the "Rec single notes here..." mixer object. There should be a little triangle on the right side of the "IAC Bus 1" text. If it's not connected to anything, drag a connection from the "IAC Bus 1" triangle to the "Rec single notes here..." mixer object. It should work by now. If not, check the other objects in the chain and see if they are connected according to the screen shot as well.
Hope it works out & good luck!
/knod
P.S. To complicate things further, I've got an "IAC Bus 2" as well in the screen shot, but just disregard this.