After investing in a new Windows 7 PC, I was getting this issue as well, and E-Mu gave the same solution as Rod. The cause was not this, but was in fact caused by incompatible sample rates between Windows and the E-Mu card.
Microsoft's error message ("The device is being used by another application. Please close any devices that are playing audio to this device and try again") is plainly irrelevant, and has resulted in a lot of head scratching. Looking around the internet I'm not the only one with this issue, so I'm posting here so that others may benefit.
What I found was that Windows 7 was defaulting to 48KHz and Sonar ASIO defaults to 44.1KHz, setting PatchMix to that when it does. Therefore Sonar plays through PatchMix at 44.1KHz, but Windows does not. I fixed this by going to Control Panel --> Hardware and Sound -->Manage Audio Devices, selecting the Advanced tab of the properties of the Emu card, and changing the sample rate to 44.1KHz. This keeps the sample rate compatable with that used in previous projects that I had imported from my old system.
This probably seems simple and obvious to some, but matching these sample rates is something that doesn't get done very often, and is therefore easily forgotten about.
Hope this helps
Douglas