In the Inspector, the MIDI tab (for simple instrument) or MIDI track (for separate MIDI and audio) should have Input = Omni and Output = VS Fantom.
 
In the Audio tab (or audio track) the input should be VS Fantom and the output should be Master (or VS 700 Main--wherever your sound is going).
 
Some of this conversation is confusing but Fantom does work just like a VST in every way that I know of.  The sound is generated in hardware in the IO instead of software in the PC, but that does not affect what you do or how it works.  You do not get the Fantom sound by plugging an audio cable into the back of the VS700 IO as though it were a synth--that is not how it works.
 
I have not had good luck selecting patches from the Fantom any way except opening the VST and actually clicking on a patch.  I know you can put Bank and Patch commands in the MIDI track--and I do that with other synths--but with Fantom I always just click them in the interface.  Maybe you just don't have a patch selected or active.

I guess, I really don't understand how to do that or what settings to make for that to happen.  It is probably something very simple for which I will say, "DOH!!!" when if I ever get it figured out.  I thought I was sending the MIDI to the Fantom which should generate the audio which routed to the V-700C (the master).

Konrad, I did not see your post prior to the above post.  
 
I do believe there has to be something wrong with my system.  I just upgraded to X2 along with upgrading from XP to Windows 7.  There may be a driver or some firmware needed, though I have done a lot of that, too.
 
In the Inspector, the MIDI tab (for simple instrument) or MIDI track (for separate MIDI and audio) should have Input = Omni and Output = VS Fantom.
 
In the Inspector's MIDI tab, Input: I've got the MIDI set on Fantom VS (VS-700) MIDI Omni.  Output: I've got two choices with "Fantom in them" (and I've tried them both), Fantom VS (VS-700) and Fantom VS1.

In the Audio tab (or audio track) the input should be VS Fantom and the output should be Master (or VS 700 Main--wherever your sound is going).
 
Audio tab, for Input, gives me has Fantom VS (VS-700) with the option of choosing MIDI Omni, MIDI Ch 1, MIDI Ch 2, and etc.  For the output, I've got Master (which is the Console or VS700 Main).
 

 You do not get the Fantom sound by plugging an audio cable into the back of the VS700 IO as though it were a synth--that is not how it works.
Though my experience is very limited, I have used the Fantom with previous Sonar versions.  Whether using a simple instrument track or not, it was a matter of input/output settings in the Sonar software.  If I recall, the setting should be similar to using the Cakewalk TTS, which I've tried to no avail.  Thus, leading me to believe there is some sort of software glitch.

John, I wish I could help more.  Fantom was very frustrating.  It was a selling point for me when picking the V-Studio, but not sure it would be now.
 
Still, if you work with Cakewalk, you should be able to get it running.  It is just an extremely unfriendly and confusing driver set-up.
 
I would caution again about being sure ARX is unchecked in Preferences if you don't have the expansion.  Also, there are two places in Preferences to check for enabling Fantom: Drivers and Devices.  Probably you have done all this stuff and just need a reinstall of Drivers, but you might look just to be sure.
 
Hang in there, buddy.  You will get there.  And when you do, Fantom is a good thing.  It gives you ots of good instruments and doesn't take CPU or memory away from your PC.  Even though I have other virtual drums, I use Fantom for variety because the drums sounds are very solid.

Hi RA1222,
 
This is one of this issues that is very hard to identify the cause since it could be related to a number of things. I've worked with countless people on this exact issue. 99.9% of the time it ends up being setup related. There is one extremely rare corner case scenario where there are some registry keys missing required for this to operate a soft synth.
 
I put together a guide that will help you determine the cause and solution for getting this to work. Can you work with the guide and let us know which particular behavior you are experiencing? You can find it here: http://www.cakewalk.com/support/kb/pages/Fantom_VS_ARX_Troubleshooting.aspx
 
Start with this first, it's very important and most of the time the issue turns out to be related to the steps. Please read each suggestion carefully. If this does not fix the issue, can you do the following:
 
1) Open the Run Prompt by holding down the Windows key on your keyboard and pressing "R"
2) Type in the following: regedit
3) Click OK
 
****
SIDE NOTE: Please be careful when entering the registry. If you're not familiar with it, accidentally deleting something can cause your computer to hate you. You can create a backup by going to File > Export. In the Export menu, make sure you have "All" selected and that the "Save As Type" is set to "Registration Files (*.reg).
 
It is very important to create a backup of your registry because if you accidentally delete a registry key there is no undo function. You can, however, double-click on the Registry backup you made above to re-import your registry keys if you make any mistakes. You MUST re-import your backup (if needed) before restarting your computer.
****
 
4) Navigate to the following registry key: [HKEY_CURRENT_USER\Software\Cakewalk Music Software\SONAR Producer\Cakewalk VST]
5) Under this "Cakewalk VST X64" folder, do you have a "HardwareSupport" folder or not?
6) Navigate to the following registry key: [HKEY_CURRENT_USER\Software\Cakewalk Music Software\SONAR Producer\Cakewalk VST X64]
7) Under this "Cakewalk VST X64" folder, do you have a "HardwareSupport" folder or not?
 
Let us know what you find :)
 
Edit: because the HTML editor doesn't want to follow my list numbering :(

Ryan, I am not the original poster but I greatly appreciate your doing this.  Should I have to resintall or change machines, this will be extremely valuable.  I will share this link with the Sweetwater tech who worked through this with me (with Cakewalk's assistance).
 
Looks like the last choice on your drop-down is what John (the OP) needs.
 
One note: In the install, since you can have two ARX and two VS-700 IOs, you have to watch out for repeated prompts (unless the installer has changed).  This messed me up one time.

I thought I would re-install the Fantom VS-Editor Installer (I had done that other other day).  Before doing that, I thought I should uninstall the previous installment but couldn't figure out how to do that.  So, I went through the install process again without the uninstall.
 
Now, when I open Sonar, I get the "Unable to read/write data"  message.  From the instructions:
 
When inserting the Fantom VS Editor into SONAR, you may receive the following error message: 
 
Unable to read/write data
Choose Help - Fantom VS Editor Manual, and refer to 7. If the
display indicates 'Unable to read/write data'.
 
This message is most likely related to configuration settings. The error message refers to page 7 in the Fantom VS help document that discusses "Initial MIDI device settings in SONAR".
 
To resolve this error message, please check the following settings very carefully:

Make sure the VS-700R is connected and powered on before starting SONAR and trying to insert the Fantom VS Editor. If SONAR cannot detect the Fantom VS hardware, then you will receive this message.

 

Make sure that in SONAR's VST Scan options, you are not scanning more Fantom VS components then you have the physical hardware for. Depending on the choices you selected when installing, you may have installed "Fantom VS.dll" and "Fantom VS (2).dll" into the following locations on your computer. If you have done this, you will want to remove the extra components from those locations or exclude them from your VST Scan options.
If you are running 64-bit SONAR with one VS-700R, you should only have one "Fantom VS.dll" in C:\Program Files\Cakewalk\Vstplugins\Fantom VS

Did that

Make sure that Fantom VS Editor itself has its MIDI ports assigned properly. Failure to configure this will result in the above error message. To set this up properly do the following:

I had to open a project to do this and insert Fantom as a soft synth.  I don't know how to open the Fantom Editor otherwise.

Insert the Fantom VS Editor by going to Insert > Soft Synth > Fantom VSIn the Insert Soft Synth Options menu place a check mark next to "MIDI Source", "First Synth Audio Output" and "Synth Property Page". Click [OK].In the Fantom VS Editor go to Setup > Setup MIDI Devices...Assign the Fantom VS Input and Output ports to "FANTOM VS (VS-700)" and click [OK

Did these

In SONAR's MIDI Devices menu, make sure you have enabled "FANTOM VS (VS-700)" under both Inputs and Outputs. If you have a second VS-700R you will also want to enable "FANTOM VS (2-VS-700)".

Did that

Make sure that you do not have a Control Surface Plug-in set to send or receive MIDI data to the "FANTOM VS (VS-700)" MIDI ports. If a Control Surface Plug-in has its "In Port" or "Out Port" set to these ports, it could be filtering out the MIDI data that is meant to be sent between SONAR and the Fantom VS hardware. This could result in unwanted behavior such as hearing notes from the Fantom VS when pressing a button on the VS-700C or your keyboard.

Yup
 
The bottom line is, I am still not getting the audio.  I am getting the MIDI signal from the track as I can see it via the VU meter.  But, no audio.

Could there be a compatibility issue.  On the drop down menu for Soft Synth, it shows Fantom VS (32-bit).  I am using the 64-bit Windows and Sonar (so I thought).
 

John, Are you pretty positive that 1-you did NOT install ARX Editor and 2-that you did not accidentally install something twice (because there are two prompts since you can have two Fantoms and two ARX)?  Also, did you check that ARX was UNchecked in Preferences under both drivers and MIDI devices?
 
I am asking because that Read/Write error is exactly what I was getting and the install thing is very tricky.  I really think you installed the ARX thing, but I am not an expert and not there to look so I don't want to mess you up.  Just something to consider.
 
Good luck.