Hi, I have EXACTLY the same problem and I am glad to find someone with the same issue, although it is very annoying isn't it.
I have filled out my specs, as you can see I have an X-fi XtremeMusic PCI. This case has worked fine in my old system in XP.
The problem occurs in YouTube music, in MP3's from my hard drive, music played from an Audio CD. It sounds like the person singing was standing about 100 yards away from the microphone ! Some of the instruments are also very quite. Everything sounds very odd but a lot of the instruments also sound close to what they should be.
I also get problems in games. In Half Life 2 you can't hear anyone's voice unless you look away from them. When you look straight at them it goes very quiet.
I have tried the latest Creative
drivers for the X-fi series. I also tried the old creative Beta
drivers for Windows 7. I also have onboard audio which was disabled via BIOS at first. But I have also tried that and still get the same problem
I have tried all the settings I can find, tried setting the one chev65 suggested to DVD quality and it still behaves exactly the same.
Anyone got ideas?