You must use the WinRecord mixer to trim the level on the lineIN.
Also make sure that you do not have the mixer plugged into the MIC -- it is not the same (although the plug fits, lol) -- it provides gain, and LowFreq bost that will cause severe overmodulation that you cannot tune out.
Also, if you are listening to the PC, make sure that you are not feeding back the output into the Record input (What you hear, Stereo MIX,) -- check BOTH WinMixers -- the output mixer and record mixer -- you need to see both.
If you don't know what I'm talking about, the WinRecordMixer has a VU level meter on it. It is the only way to correctly set the stream level.