I would use the digital cable that came with it inot the PODS variax input. For more felixiblity using the two outputs

. If I use both inputs what do I select for the input 1 & 2 settings in the setup menu?

 

Thanks

It's up to you, either Input One is variax and 2 is guitar, or input one is guitar and input 2 is variax. As long as you know that input one  corresponds with path A and Input 2 goes to path B in general if you're setting up for two dsicrete  signal paths. Keep in mind what I posted above from the manual specifically this part:

In a configuration with no Amp or FX Blocks in Pre, Input 1 is fed only to Path A

and Input 2 only to Path B. Therefore, this is the best configuration if you want to

retain discrete Input Sources into Paths A & B.

what makes this easier to understand is understand the use of the  the word "PRE"  and that it doesn't mean before the AMP. Pre means before the SPLIT  to A and B. SO if you have a distortion feeding two amps, then  that distortion is in the PRE, but if you move the distortion to only feed one amp while the other is dry,  then that distortion is in the POST position.

This whole thing becomes even clearer if you set up for Guitar and MIC lets's say. In this case you most likely would like to have two discrete paths . In this situation you wouldn't have any effect in the PRE POSITION unless you want to get experimental. Your signal paths would look like two parrallel straight lines. SO in this case if you put an amp in path A, then that should be for your guitar (so you chose input one Guitar), and path B would have a compressor or other things suited to a mic and that would be accomplished by choosing MIC for INPUT 2. Now if you're not using a mic and you chose MIC for input 2 , you will notice that the sound does clean up if you chose Variax for input 2. That's why many like to chose VARIAX for input two even though they don't own a variax, because it simply gives the  least noise verses "Mic" or MIC + AUX, etc etc.  That doesn't mean that you can't use guitar for input one and input two, this will essentially be like putting a boost infront of the amp because now the input is doubled. Persoanlly I use VARIAX for input two, even though I don't own one, in many of my patches but I also use Iinput 1 guitar and input 2 guitar in some patches because it's gives this nice boost..