I just want to expand on this solution for those having trouble if I may.
I managed to sort the distortion (at least in my mind I have) after trying a lot of stuff. In the end it was very simple.
As the OP said, open up your roxio game capture line (make sure you are listening to the device) and reduce the line volume very low (I set it to 0 and it worked wonders).
Some users report that the sound eventually goes back up, this is true. I noticed when I started the game (or when I start my livestream) the line volume jumps back to 100. As far as I know it does this a lot more frequently if you close off the line volume window.
What I did was
keep the line volume Window open, set it to 0. Started the game, it jumped to 100, set it back to 0 and
leave the window open for the duration of the recording. It stayed 0.
Now for the second part. On your bottom right toolbar, right click your volume icon and select '
Open Volume Mixer'. Search for LINE(Roxio GameCap) and adjust the slider. I found the
optimal volume to be from around 20 - 35. (if you are not listening to the device it will not appear in the volume mixer)
After this I recorded a battle on final fantasy XIII-2 (these battles normally have VERY high distortion if you didnt do the above) and there was no distortion for the whole battle and everything was very smooth and easy on the ears.
I hope this helped people. I am only just after discovering it now after some fiddling with settings
For those interested, here is what the final outcome looks like when using the device:
Screen Captrue
Recorded Video
Edited by AlanOC91, 13 August 2012 - 09:03 AM.