This works:

arecord -D plughw:1,0 -c 2 -r 48000 | aplay

I hear the audio generated from the capture device.

But, after I use vlc or any other program and try to use it again with the plughw1,0 it no longer works- I just hear silence.

I started with Ubuntu 12.04, compiled a new kernel, compiled new alsa, and still no luck.  I even tried
    alsa reload

I uploaded by config to: