I will look at the suggestions tomorrow, but I can confirm that the recorded track is clean with none of the delay and distortion on the monitor signal.

Well. I decided to try one simple thing. Plug the jack into the other port (Input 2 R) of the Quad Capture and guess what, no distortion! I am not sure why but Its behaving as i expected now.
 
There are some remaining latency issues to resolve but a big thanks for all the sugestions.

Is your input 1 set to the correct input type (Hi-Z/guitar or line in)?

Now that is strange. Input 1 is supposed to be the hi-impedence instrument input.

Still, glad you got it sorted out.