I started this topic so sorry to resurrect it but I only recently figured it out.
It looks as though the secret is to DISABLE SYNC IN in Live's preferences. This doesn't seem to make any sense, because if it's NOT in "EXT" mode, why would having a SYNC INPUT enabled make any difference?
What I would see is that pads, whether you hit them or played a sequence, would send "something" to Live as shown by Live's MIDI Input indicator. However, none of that would ever show up in a channel, even with "ALL INS" "ALL CHANNELS" enabled. I tried putting the Live's Max MIDI monitor in a channel but it didn't show anything.
It's been about a week so far and since I did this, I haven't had a problem.