We have since discovered that this is an FCP issue - it has no facility to use other than RS422 which rules out the neat LTC option on the IO HD.
There is a box made by Adrienne Electronics that addresses this issue by converting LTC to RS422 and becoming a 'virtual vtr' to keep FCP happy.
Should all work but its a shame having got together such a great box as the IO HD and FCP becoming a more serious player that you need to buy a little box just to make timecode work properly.
You can use VTR Exchange to capture with timecode but you get no numbers displayed while capturing and only a 5 frame per sec or so picture displayed in the capture window.
When you are in a multicamera environment sync timecode is important and
it would be nice if these apps made it a little more visible here and there.
Otherwise the IO HD is a really nice box.
The next version of VTR Exchange which should come out pretty soon (it was previewd at NAB) will have visible timecode in the window while it's running. It's much easier to discern what's going on while doing live captures. I believe the LTC option will be enabled as well, but I could be wrong about that.
Yes, the preview capture window is choppy, so use a monitor to, well, monitor live captures, even if it's cheap one, at least you'll be able to see.