OK... I opened MC4 to see if I could find the rest thing.... A quick look around did not show me the thing I thought was in there. So maybe it doesn't hide the rests. As you enter the notes with staff, MC places rests automatically to fill the remaining musical time. But if you drop in another note, that note is more important and the rests will adjust automatically.
That would kick it back to the resolution you are using to write the notes. Be sure to have the resolution of the note set to the smallest note value you will be using. Notes take precedence over rests. Default resolution goes from whole notes to 128th note triplets if I recall..... most songs are fine with 1/16th notes as the smallest resolution.
Next... upgrading to MC6 I don't think will solve the problem with playback. That sounds more like a driver issue and the card itself. Factory cards are not good to use for cakewalk products. But.... you can always try the MME driver and set latency and buffers higher and see if that gets it working. It's generally pretty hard to break MC4. Try this next step first before you buy MC6...... although buying MC6 will give you some pretty cool new synths to play with and loops that MC4 doesn't have so upgrading is certainly worth the $40 cost.....
Ultimately, the best course of action is to get a decent USB audio/midi interface from a company like Presonus, Focusrite, or M-Audio. Most all of us here are using the USB interfaces for recording & playback. They really do make a huge difference in the recording experience. Through the years I have seen many, many strange issues come from trying to use a factory card and as soon as they buy an interface, the software works exactly like it's supposed to work.