Does anyone have a solution to this problem?

Using ATI AIW 128pro or Ulead5 with firewire in I can capture with no problems in MPEG 1 mode. When I try to capture (TV or VideoCam) in MP2, the sound is very distorted during playback with any player. I get the same distortion when playing DVD's with ATI's player or PowerDVD.
Lots of crackling (like playing an old vinyl record, especially at louder passages). I think the sensitivity is way too high, causing saturation. On PowerDVD I can change audio to Direct Sound instead of Wave out, which helps a lot when playing DVD's but not on own captures. I didn't find a Direct Sound option in ATI's settings. Adjusting volume on the Wave channel or main does not change the symptoms.

I'm using a P-III at 650 MHz and the sound built in on my Intel MB (Yamaha legacy sound).