This is strange... I had the same issue trying to record 2 mics using Pod Farm 2 installed on a new computer. There is no obvious way to select the inputs anymore. The settings screen is there as described, but there are no options to switch between line and mic. I've been using Pod Farm for years, thought I was going crazy.
So I tried Pod Farm 1 (version 1.12--I guess they both install at the same time) and in the old layout, you have a split screen for dual tones, and each window has a proper dropdown selector at the top where you can choose Mic 1, Mic 2, Line 1, Line 2, or Instrument. These are working properly.
I think this means that Pod Farm 2 probably has a faulty UI. Here's how you'd accomplish this with the old version.