The problem was partially resolved.
When I plugged the direct interface device, connecting the phone line to the sound card's mic input, I was not aware at first that I have to manually also tell the VRS to use the my sound card (under the chanel's setting). After I did that, sensing and recording are just fine.
The problem that still remains is why doesn't it want to work with the modem (and I made sure that the Record Device selected is 'Modem #1 Line Record. It is imported for me since I planned using it for the 2nd phone line.
Any suggestion is welcome.
David