I feel like I'm going to fail at trying to describe this but I'll try anyway:
 
In my old setup (8.5/Vista) I could hit the red from time to time and no real harm done.  Yes you would hear some distorting if you went too loud but it sounded like typical analog distortion.  In my new setup (X3d/Win7) if I hit the red one time it causes massive LOUD distortion.
 
I only hear it on playback, when I'm recording I don't hear it but I can see it if I hit the red if I'm watching.  Here's an example, I set this so it just barely hit the red: http://www.koskenmaki.com/flute.wav (edit: oops I didn't realize I was printing the delay as well but you get the idea.)
 
Nothing has changed in my hardware.  This sound is triggered on an external computer which goes ADAT into my mixers (02R96) then ADAT into my 2408s and recorded in Sonar.  (I print flute samples all the time because I prefer to apply audio effects in Sonar.)
 
Clearly you don't want to hit the red but I don't want an occasional peak to ruin a take.  Is there a setting I'm missing?

Bump for Monday.  Is this distortion normal for you if you peak too loud or is something screwy in my setup?

I could not hear your example but what you describe would be digital clipping. To fix it in future be sure that you have the source at the right level. In Sonar be sure the record meters are at unity gain.  That is zero.  Read the peak level. Do not adjust those faders when you are recording. They will have no effect on the signal but will give you a false reading if you move them. You set your level at the source and at the inputs to your audio inputs. 

This is all correct and makes sense to me.  But what I don't understand is in my OLD setup with a different computer, OS, and Sonar 8.5, but with the exact same hardware setup and routing, I didn't get the digital distortion if I clipped.  I mean the sound would distort a bit, maybe compress, but I never heard this loud digital feedback.  Especially if I just barely hit the red like in the example I posted.
 
It's not just zeroing everything to fix it because it makes mixing very hard if I have to avoid ever touching the red.  In my old setup, a final mix for me would probably just barely peak and hit the red once or twice per track.  I liked it that way... enough so I it was "hot" but not enough that I could hear any clipping or distorting when it peaked.  In the new setup, I can't mess with that red line or I get crazy digital feedback.  What changed and is this normal?

I'm not talking about mixing. I'm only talking about recording. One way to check that the recorded audio is clipped or not is to look at it. Clipped audio will look flat where it should have a smooth parabola looking top and bottom. 
 
Your levels for recording are dictated by the very loudest sound you record. If that is not clipping nothing else will.
I am not that worried about the signal going into the red. Its clipping that is of great concern. Clipping means it is louder then the A/D converter can handle and will simply cut off the top. Its that cutting off the top that can sound bad.
 
I did listen to your sample and it very well could be due to clipping but I'm not sure.
 
I get the feeling that you are not understanding what I am telling you about setting up for recording.
 
This is very important. If you set the record track fader at any value other then zero you will not get a true reading of what is streamed to disk.  Adjusting it while recording will not change the level going to disk only what you see and hear if you are monitoring. It will look like you are lowering the level when you are not. That has to be done at the signal source. 
 
 

Could SONAR be recording at 16bit? Check Preference > File > Audio Data "Record Bit Depth"

Yes!  This is what changed!  Thanks a ton.  And thanks John also for your help much appreciated.
 
This was set to 16-bit I set it to 32-bit and now on recording I can *see* the clipping and I'm sure the sound is compressing but I don't hear the massive digital distortion.  Should this be set to 64-bit?  I never messed with it before I don't remember what my old system was set to.  Currently record and render are both set to 32-bit.
 
All the tweaking I've been doing to the audio settings I always look under "audio" never thought to look under "file".

I do not see a point in setting the "Record Bit Depth" higher than Preferences > Audio > Driver Settings "Audio Driver Bit Depth"

The bit depth isn't going to do anything except give you greater dynamic range and a lower noise floor. Plus no A/D converter can record above 24 bits. 
 
You need to lower the output from the source. 

OK So Audio Driver Bit Depth is set to 24 that's what I should set record bit depth to?
 
John I understand how to record without clipping and I do almost 100% of the time.  My original recording I posted was just a poorly chosen example, the real problem I was trying to get at was during mixing.  If the final stereo mix happened to just momentarily glance into the red I was innundated with a loud burst of digital distortion.  I would like to be able to occasionally just nick the red without worrying about wrecking my ears.  The "greater dynamic range and a lower noise floor" appears to have fixed this.
 
When you say no A/D converter can record above 24 bits does this apply if I am only working with digital and no analog?