It's definitely the volume levelling mic. Someone on here recommended that I remove the mic on my 04 GT with the Bose system to stop the volume randomly going up and down and also to stop an annoying background hiss. I did so and now the stereo works perfectly. Now removed, I have the same connector hiding in the pen tray. The only downside is that my rubber tray no longer fits! If anyone has the longer version spare that they'd be willing to sell I'd be happy to chuck them a few quid.
so you've got the radio on, just in the background, your passenger asks you a question, at which point "cabin noise increases" which therefore makes the radio louder, which means that you didn't hear your passenger, so they ask louder, which, because the cabin noise is even louder the radio is set even louder ... which means that you don't hear them ... or am I missing something