Yes, it sounds distorted and overdriven. If you play a commercial music CD or some other music, not generated on your PC is it OK or is it distorted too?
I have a home recording studio using Sonar (X1). If I record something too high and it distorts and clips it will sound like what you have.
One other thought, have you disabled the on board Realtek integrated audio? Make sure it's disabled in the BIOS or it can conflict and even cause the problem you are hearing. I worked with a user on the Dell Users Forum that was getting distortion with a newly installed SoundBlaster sound card and it turned out the user had not disabled the integrated audio and as soon as he did the distortion problem went away.