You have to change the setting in the "preferences" dialogue box:
From the manual:
• Manual. This option allows you to turn input monitoring on or off by clicking the Monitor button in the Inspector, the Track list or in the mixer. • While Record Enabled. With this option you will hear the audio source connected to the channel input whenever the track is record enabled. • While Record Running. This option switches to input monitoring only during recording. • Tapemachine Style. This option emulates standard tapemachine behavior: input monitoring in Stop mode and during recording, but not during playback. External monitoring External monitoring (listening to the input signal before it goes into Cubase SX/SL) requires some sort of external mixer for mixing the audio playback with the input signal. This can be a stand-alone physical mixer or a mixer application for your audio hardware, if this has a mode in which the input audio is sent back out again (usually called “Thru”, “Direct Thru” or similar). When using external monitoring, you cannot control the level of the monitor signal from within Cubase SX/SL, or add VST effects or EQ to the monitor signal. The latency value of the audio hardware configuration does not affect the monitor signal in this mode. • If you want to use external monitoring, you need to make sure that monitoring via Cubase SX/SL isn’t activated as well. Select the “Manual” monitoring mode in the Preferences dialog (VST page) and simply don’t activate the Monitor buttons.