just some that come to mind:
- basically all seems to be set up right. VST connect can not make a recording stop in Cubase, so there must be other reasons within Cubase that cause this to happen.
- what exactly happens on your end: does Cubase continue to play without stutter and just punches out? If so, stupid question: are you sure to not have auto punch out activated?
- with the very same project but not beeing connected: can you record your own mic without Cubase dropping out of recording?
- activate the VST Performance Meter: any overloads there?
- make sure ASIO Guard is off
- make sure Constrain Delay Compensation is off - you probably have that anyways as it won’t work in the first place
- if all else fails: load the VST Connect template, connect your mic, bring in your playback mix and try to record your partner: will it still fail?
Hope that helps…