AverMedia Live Gamer HD - Audio In / Out Terrible Quality

Ok,so I went out to get my AverMedia Live Gamer HD. Got home,set it up. No problems. Plugged in my headset,and the audio through my headset is soooo bad,but when i replay the video(After I unplug the audio in from my sound card and plug my headset into my sound card) it is fine.

Here is the was i have it connected:
-HDMI from 7770 to capture card
-3.5mm to 3.5mm from Asus Xonar DG to capture card audio in
-RAZER Electra plugged into audio out on capture card
-HDMI to dvi into my monitor

When i play games/listen to music with that setup, my audio through my headset is crumbled,it is TERRIBLE!

But when i have it setup like this:
-All video cables are the same as before-
-RAZER Electra 3.5mm plugged into Xonar DG

it works fine like that,but wont record audio,and through HDMI audio i cant listen to my game at the same time.

So,do I need a 3.5mm splitter so I can plug in Audio In and my headset into the Xonar DG?
Im stumped, I've tried everything.

Here is my rig:
Intel Core i3-2120
Asus P8H61-m-le
8gb Hyper-X 1333mhz ram
AMD Radeon HD 7770
450W PSU
AOC e2343Fk Monitor (Capture Card plugged into this montor)
SAMSUNG SyncMaster E2020 2nd monitor

Peripherals:
RAZER BlackWidow Ultimate 2013
Logitech G300 Mouse
RAZER Electra Headset
Apex 440 USB Microphone

Thanks for your time.