The cause of this problem is rather simple, just like the circuit. The base to emitter voltage drop of the MPS3704 transistor is .6 volts. In order to light the LED, you need an input voltage high enough to cover the base-emitter voltage drop of 2 transistors. This means the circuit is designed to light the led when an input signal of about 1.2 volts is seen. This is around the voltage of a normal line level signal, but the earphone output of my vintage cassette deck is nowhere near this, which is why the LED does not light. The shape of this signal is more important than the magnitude, which is why I can read data fine with my cassette deck, even at such low levels.