@NatSci - I am embarrassed to say that I have figured out my problem - reboot the iPad. Once I did that, everything worked perfectly.
Which amp setting are you using on the Fender Mustang to get a "clean" sound out of the amp? Do you use a preset, or did you customize one? I imagine that you could go into the Fender Fuse software and easily create a clean sound? I haven't actually fiddled with the Fuse software at all to this point, so I'm just guessing.
Thanks again for all of your help. You saved $100 (and a load of grief from my wife after spending said $100).
I would personally recommend the Tiger guitar to ipad interface over the iRig. I have compared both and have found that the tiger one was the simplest to use and the best value for money. It also came with a tuning app, all i did was plug in and i was away. I was instantly able to record and edit my sounds and at such high quality. it can be used for ipad and iphone and probably more iDevices. http://guitartoipad.co.uk/ < thats the main website but i bought mine from http://www.djmmusic.com/Itemdesc.asp?ic=ICO2-WH
I already had a Griffin iMic USB interface for garageband recording on my MacBook (see link below.)
I wanted to find a way to use this on my new ipad (4 gen with the lightning connector) rather than shelling out for another audio interface, I'd heard bad things about the iRig and was looking at the Apogee Jam, but with the 30pin adapter it also needs for the new iPads it was going to be about £100 in total.
The lightening to USB camera adapter also works brilliantly for audio in and audio out when used with the iMic usb interface.
You can use the guitar recording function in garage band if you want to use the amp modelling and stomp boxes in garage band - for monitoring during recording the audio out comes from the lightning port. I get a bit of interference at high volume doing this, but it's not on the recording - only during monitoring it's probably just a loose connection in my old iMic. Guitar volume pots are a bit noisy when turned using this method but I've found using the mic record option (below) solves this problem - I think that's a issue with the garage band amp modeling software.
You can also use the mic recording function for 'raw' sound recording - I have a POD 2.0 amp modeller and a couple of boss pedals I like to use so I'm generally using this option to record (I like real buttons and switches!) - audio out (for monitoring with headphones) comes out of the ipad headphone jack with this method so I don't get any of the interference I get when recording with the guitar record function - also the guitar switches and pots are quiet and smooth when they're used, they're a but noisy and jumpy with the guitar record method - I have a PRS SE Singlecut and it normally sounds crystal clear when I'm not using the ipad.
Overall it works very well - good clean sound with no noise and decent input signal volume, and it only cost 25% of the Jam/adaptor option, using stuff I already had - and I can use the USB camera adaptor for other stuff - such as a camera!
Make sure you have decent leads for your guitar to ensure good signal quality and you'll also need a jack plug adaptor as the iMic uses a small headphone jack.