Yes. It is possible to do, but it’s a bit tricky because the OS mutes your audio output when dictation is enabled. To make sure that Sound Siphon doesn’t get muted by the OS when dictation is started Sound Siphon must be off. This doesn’t mean that Sound Siphon can’t be used, it just means that Sound Siphon isn’t the default output device.
Follow these steps and you should be able to use Sound Siphon with dictation.
1. Turn Sound Siphon off.
2. In dictation preferences select “Sound Siphon” as your input microphone.
3. Use Audacity to open and play the audio file. (http://audacity.sourceforge.net/download/mac)
4. Select Sound Siphon as the output device. You can use any app that lets you specify the output device.
5. Start audio playback in Audacity
6. In TextEdit (or other text editor) start dictation.