I suspect I already know the answer, but hoping that I'm wrong.
 
I'm recording electric guitar directly into X2 (no amps and mics) and applying effects and amp simulators on the back end.
 
Problem is I want to hear the effects while recording. As best as I can tell, this isn't possible (the closest thing is the track echo, but the latency therein makes recording riffs tedious/impossible/painful). 
 
Can this be done, and if so how? Some notes on my set-up:
 
IN: Lexicon Omega into USB.
OUT: The same (X2 does not recognize the sound card built into the recording laptop).

Input echo is the way. A decent interface should be able to perform the round trip in under 10ms which is generally considered adequate for monitoring through the DAW.

I assume you're using ASIO, and not some other driver?
 
How low you can set latency depends on how complex the project is. If there are lots of virtual instruments etc., you need to set the latency higher.
 
One workaround is to create a premix of your complete project and temporarily archive all the tracks. This should allow for low latency as you play to the single audio track. After your parts are done, delete the premix and take the tracks out of archive.

guyshomenet - I'm replying because I've felt your pain. I came up with an answer that works great for me, and I'm sure others will chime in with their rebuttal or their personal tips. I probably am replying with what others might suggest is heresy.

The upshot of my reply is that I hear essentially zero latency when recording live tracking (recording) when I have the guitar loaded with amp sim effects. Sounds like it's coming from a real amp. Same for vocals, no delay even with effects and reverb etc. while recording.

I have an audio interface for all kinds of mixing and wide ranging inputs. But I put that aside when I'm tracking (recording) electric guitar, or using microphones for vocals or acoustic guitar.

Anyway, this particular device works for me and I couldn't be happier.

Links:

http://www.youtube.com/watch?v=zwBR1OfHRtM

http://www.youtube.com/watch?v=cRpCXWSC8TE

Guy, this is probably the answer you are anticipating, but hoping you wouldn't see.
The Lexicon Omega is a somewhat dated device. It is USB 1, and the ASIO drivers are marginal. At best, it will deliver almost tolerable latency. Sorry to be so blunt, but it is what it is.
I like the concept of the Omega. It has a very cool layout, and basically good I/O control, but its physical limitations are its downfall.
Most contemporary interfaces will allow you to record while monitoring the effects through input echo at imperceptible latency. I don't have an actual amp here, so recording with amp sims is a matter of routine.
I use an Akai EIE Pro because it has some unique functions, but there are dozens of suitable interfaces that will do what you want. Sadly, the Omega isn't one of them.

I use a Lexicon Lambda and GR5 amp sim to record guitar tracks. If I don't have a lot of tracks, it's no problem setting the Lambda ASIO driver down around 9ms, which allows me to monitor through GR5 without noticeable latency. With more tracks, you can follow Craig's suggestion and freeze some.
Sometimes it's more convenient to press the FX bypass button on the control bar, but you can only hear the direct guitar signal when you do that.
When I've finished recording, I turn off the input echo and set the ASIO driver up at ~65ms for smooth playback with all FX and tracks back on.

For anyone who's interested, I often have 120+ tracks in a song (lots are MIDI and /or are frozen /archived). But usually I may have 20 - 30 audio tracks unmuted after I get some tracks layed down. (A lot of these tracks are kit pieces from drums, etc.). With my regular audio interface when I have a lot of audio tracks live in the mix if I'm adding new guitar tracks I'll notice perceptible latency. Very glad to see Craig's suggestion of bouncing the song down to a premix track and archiving / muting everything else. That's cool that is an option to work with.

What I'd just like to mention is with the device I mentioned above (unlike my regular audio interface) I actually track/record great with the 20 - 30 live audio tracks with no perceptible latency - either for effected guitars /amp sim stuff, or recording with a microphone and even adding effects. It's like night and day, and I've done A/B comparisons. Just mentioning it if it helps anyone. So I use that device specifically for recording electric guitar, acoustic guitar and vocals. I use my other ones for everything else.

lawajava

Anyway, this particular device works for me and I couldn't be happier.

Line 6 uses what they call "Tone Direct" technology which indeed gets extremely low latency because they're basically bypassing all the layers most interfaces go through. The tradeoff, though, is you're committed to recording whatever sound you've dialed up with their POD software. Of course you can record a pretty dry sound and re-amp it later...but if you're going to do that, you can just use zero-latency monitoring. Still, Line 6 came up with a viable latency solution at a time when computers often weren't up to the task. I still have my KB37 :)
 
Some people considered this a disadvantage but I think there's value to committing to a sound. Although I use amp sims all the time, it's rarely for the ability to change sounds in midstream; I use them to create sounds I can't get in the physical world. If I recorded a song with an AC30-type amp feeding three parallel cabinets, that's almost certainly not going to change into a Marshall stack.
 
As to the original question, yikes - USB 1.1 is definitely going to have latency issues. That's very slow technology. Okay for a couple tracks, but push it any harder, and the latency goes through the roof.
 
 

I not only believe in committing (to an extent)to a sound, but I need my guitar to sound a certain way when I'm recording. It affects the whole feel of my playing. I have a POD HD Pro and have never been dissatisfied with the tone. I recommend investing at least in a Pocket Pod. At $129 or so, it's pretty reasonable. Good luck.

I owned a UA Apollo a month ago and I’m pretty excited. You can set the buffer to any size you need to run the project without drop outs and don’t have to worry about latency when you play thru the UAD effects on the internal UAD-2. So you don’t’ have to mix down any track and can even add some guitars while you’re in the mixing process. The downside of the Apollo is that isn’t a cheap interface and you can only use the UAD-Plug-Ins while tracking. There are not so much amp sims available now and they are expensive too. The Apollo comes with the Softube Amp room Half-Stack, which is only the Marshall sim from the Vintage Amp Room Bundle. The Vintage Amp Room Bundle is not my favourite, but it’s ok for tracking and it provides a wide range of sounds. By adding reverb, delay and/or chorus I almost get a sound I’m comfortable with, what I think is the most important thing. I only record the clean guitar signal a do the reamping afterwards in the mix.
 
Before I bought the Apollo I’ve done guitar recording as mentioned before, by remixing and archiving tracks to get the latency low. That also worked very well for me. Now with the Apollo I can concentrate more on music that on latency ;).