I figured out a work around.
1) Press Control + T to bring up the Track dialog window.
2)Make sure that the "Channel" matches the Midi channel that you are using.
For some reason, if the midi channel is set to "None" and the Input is correct, Sonar happily records all note events, but struggles with the envelopes. Since it doesn't know where to direct the envelope data, it defaults to channel one.
I use Sampletank a lot. Since I setup the Midi input to match the output of my Midi Keyboard, and the track output to go to Sampletank, the soft synth works fine. Sonar did not know where to direct the midi data that I was generating within Sonar. It's starting to make sense now.