For the distortion, you will probably need to change the input volume into the PC. To do this, click "Start > Run" then type "sndvol32.exe /r" and a new window should appear.
At the bottom, make sure that the Line In column has "Select" checked, then just by trial and error, move the slider until the sound gets as loud as it will go without it distorting. Also, make sure the input to the computer is in the "Line In" port at the back.
Also, make sure that in the select tick box under the "Recording" column is not checked.
If you still have problems, switch the input to the computers "Microphone" port, check the select box in the "Mic" column of the window you brought up earlier, and then do the same as above.
If you still have problems, I will have a mess around on my computer to try and help you find a fix!
Hope that helps!