Sounds like your X-T1 accepts that "mic input" as a remote trigger instead. Try another cable or microphone to see if that works. The cable you're using now might be of the right diameter (2.5mm) but still mess up because of a different specification. The number of black rings in the tip and the order of the signals in that tip are important.

From the manual it seems normal that the question for the setting pops up whenever you plug in a connector:

Using an External Microphone Sound can be recorded with external microphones. See the microphone manual for details; if the microphone jack is 3.5 mm in diameter, use a 3.5-to-2.5 mm adapter. R The dialog shown at right will be displayed when a microphone is connected to the mi- crophone/remote release connector. Press MENU/OK and select MIC/REMOTE RELEASE > m MIC.

Just some advice having an X-T1 myself; I wouldn't bother with it for video. Compared to my X-T2 that I do use for video the video quality of the X-T1 is absolutely worthless. My Google Nexus 5X smartphone makes way better video recordings. Only applies to video, image quality of X-T1 totally rocks.