Thanks for your answer!

Input ports: Analog In 1 Fast Track Ultra + Analog In 2 Fast Track Ultra
Output ports: Software Out 1 Fast Track Ultra + Software Out 2 Fast Track Ultra

I have the M-Audio sound card installed correctly. The sound card has 8 input channels, and 8 output channels. I only use 2 inputs and 2 outputs. In the M-Audio control panel, I have a mixer where I can control the level of the dry input as well as the software returns. I however don't have any possibility to change the routing: The software return always goes to the main output.

Experimenting further, I realize that it is the *playback* that gets distorted by selecting "Enable IM effects recording":

If I record a track with a real time effect applied to the "input monitoring" channel and have "Enable IM effects recording" checked, I get the wet sound both in my monitor and recorded on the track. But if I then play back the newly recorded track (while still having "Enable IM effects recording" checked), it sounds terribly distorted.

In fact, any track (audio or midi) sounds distorted on playback if I have both "Enable Input Monitoring" and "Enable IM effects recording" checked. Regardless of whether any realtime effect is defined or not.

Hmm. I must be missing something. Very grateful for any further advice!

Regards
Bjorn