Well I have been using the setup mentioned above for over a week now and I am recording well. Sometimes (it happens at least once every session), I'll get the fuzziness when I arm my recordings and turn  input echos on, but as long as I don't hear it while trying to play through Sonar's monitoring, I will not have to deal with it when I'm recording. Simply turning off the echo and re-enabling it makes the fuzz go away most of the time. It's got to be a combination of the way Sonar arms the tracks and Windows 7 sound handling. After all the testing I've done over the past few weeks it's the only conclusion I can come up with. At least I have the satisfaction of knowing when the fuzz will haunt me by using the input echos. The latency for my M-Audio is low enough to handle it very well.
 
Thanks again to all of you who helped me figure out my stuff. Hopefully, Windows 7 and Sonar will be fully able to work well with each other eventually. It's working great for me right now, except this one big thing that became a small thing after I realized better methods to work.
 
I will always be a Sonar user.