When using the first Mic Input and setting it to Ch1 and 2
Then setting both channels to manual (AGC/Limiter Off).
Then setting both channels to the same audio level.
I get no sound in the headphones.

If I adjust the 2 channels so they are one click off in volume, I hear the audio.

It's almost as if it's a phase cancellation issue.

I've tried with two different mics (Sony supplied and Sennheiser G2)
and two different headphones (Sony 7506 and Sony 7502)
with the same results.

The audio recordings are fine and appear to be in phase in my NLE (FCP) and audio program (SoundTrackPro).

The only thing I can think of is that there's some strange phase cancellation issue in the headphone jack.

I'm going to double check the same setup with AGC on.

Has anybody else noted anything like this. VERY ODD.

I assume you've used just one mike and sent it to record on both channels? In that case, the noise-cancellation is literally in the audial center of your brain. You're hearing the exact same sound with both ears, which doesn't occur naturally. Your brain is trying to determine directionality by its own noise-cancellation process and since there's no difference being heard by each ear, the sound is cancelled all the way down. By changing the volume, you added some differential that gave your brain something to use for giving you a perceptible sound.

Am I serious and is this correct? It's better than anyone else has offered so far.

Brain's have no issue with hearing exact same sound in each ear. Sound 180 degrees out of phase in another story.

The headphone jack failed completely a couple of days later. I don't doubt that there was phase issue as a prelude to the failure.

The failure of the jack was the 2nd time in two years.

Once again a trip to Armato's and likely over $200 to replace the component.