So, I just want to confirm that in the Mac OS 9
Sound control panel on the
Input tab, the check box for +*play sound through output device*+ is checked -AND- when you click the Options button to the right, you have the correct +Input Source+ selected.
Also, I'm told Cubase is a very complex program. It might have it's own "play through" setting somewhere. If that is turned OFF, it probably overrides the system setting.
Try a very basic program like Coaster. See if it can record and play the sound at the same time.
http://www.visualclick.de/products/coaster/index.html
Coaster's +play through+ setting is right on the main window, if I remember correctly.