As has already been mentioned, your video card can make a huge difference.  Some vid cards and/or their drivers can create all kinds of weird glitches.  Make sure you have the latest drivers for your card. (This is no guarantee, but at least easy to do).
 
Next, I would look at your M-Audio interface.  You can eliminate that (or its drivers) as the culprit by first trying it with the ASIO4ALL drivers.  Or, if still no joy, switch to your onboard soundcard (w/asio4all drivers) and see if the problems go away.

Daylaa..after months of frustration and search engine digging, I realized it was a known issue.  Many Nvidia cards cause latency issues.  Since I am on a laptop (have not gotten around to rebuilkding desktop yet) I am screwed on video card.  One way to tell for sure iis to use something like latencymon http://www.resplendence.com/latencymon
 
It will show you exactly what causes latency issues.  For me it turned out it was wireless card and video card.  The wireless can just be turned off when using Sonar but the video issue is a pain.

Thanks guys, but I went through all of this before.
 
I have always had the latest MAudio drivers and have used LatencyMon which was inconclusive. I thought it could be the wireless adaptor but it wasn't. I have no sound card issues with Home Studio 7 AT ALL - so does this illiminate it being a soundcard/driver issue??
 
My PC is a purpose-built Audio machine - the soundcard installed on it SURELY must be one that's not gonna get in the way of things. I've not installed another soundcard.
 
I went round and around like this before - nothing fixed it. It must be a bug in X2.

Daylaa
It must be a bug in X2.

Possibly, but at the very least, it's an interoperability issue with your particular hardware/configuration or we'd all have the same issue. And it's impossible to know whether that interoperability issue is due to SONAR or something in your PC not adhering to a standard or even whether the lack of a standard is allowing a conflict of some sort that isn't really anyone's "fault".
 
Unless it's something at the mobo level, chances are good you could fix it by making a change to your system, and Video/Audio interfaces seem the most likely targets at this point. I realize it's difficult (and expensive) to experiment in this realm, but it may be a long time before the Bakers are able to replicate the problem on their hardware, so you might have to bite the bullet.
 
I once had to make an interface change because of a problem with an old M-Audio interface (Omnistudio USB) that I could not replicate on other machine or even with the crummy onboard soundcard in my DAW. Neither M-Audio nor Cakewalk could reproduce it to investigate, so I was stuck.
 
Just look at it as an opportunity to upgrade. 
 
 

Thanks Brundlefly - it's certainly something I've been thinking about.

When I first started using some Pro Channel effects, particularly the console emulation modules, I got all kinds of pops and crackles and figured something was wrong with them.  I didn't used them for a few months and just figured something in my system didn't like them.  Everything else in Sonar seemed to be fine.
 
Then one day, I decided to spend some time fault-finding.  Turned out that, by default, power management in Win 7 had minimum and maximum CPU levels, which were set at something like 5% minimum and 100% maximum.  After I changed the lower level to 100%, all my Pro Channel problems went away.  Either Windows was running my CPU too slow, or just the fact that it was tweaking the speed of the CPU on the fly must have been causing the problem.  Funny thing was, I'd never had a problem before with other things.
 
What I'm trying to point out, I guess, is that there is huge scope for system config to cause these kinds of issues.

This one does sound like a CPU load issue or possibly a bug in the eq plugin itself. 
Its very unlikely to be video related - you should be able to rule that out more or less by automating the parameters and then closing the PC UI. If the glitching only occurs when manipulating the params through the user interface, then its possible that something is blocking the audio processing for too long.
Watch the windows CPU meters while you are doing this from task manager. Do you see excessive spiking while you are sweeping the eq?

Check and make sure your computer power management is set to "High Performance". Next thing would be to unpark your cores if not already done? There is also a setting in the SONAR config file to make X3-2 use the cores. I forget which one off the top of my head? When working you will see lines moving in the control panel at the top of X3-2. 

One thing I haven't seen mentioned... Did you install the "a" patch (or even Quickfix) or were your initial tests on the original release? Just a shot in the dark.
 
You've already got expert advice coming your way so the following is purely anecdotal. When I first installed X1 (with the d patch) I was having the same issue with the PC and many other parameters. I had just built my system from scratch and it was MORE than powerful enough. After inquiring here and calling tech support it was pointed out that my PCI based interface might be the problem (bridged as opposed to native PCI on the MOBO). It was suggested that I get a new interface (I was pretty annoyed about that but I did it and I'm now quite happy with my 18i6) and use the Sweetwater Optimization Guide to tweak my system (minus a couple steps that screw up Sonar). Once the new interface was installed everything was fine, I did the tweaks and then even the old interface worked better (after spending $300... lol. Still like the 18i6 better and the Layla can now live on my old system again).
 
Then a couple months later X2 came out (and I missed all the specials... bad timing) and tweaks during playback issues lessened even more. Even after the tweaks and new interface in X1 if I was using the heavier duty plugs audio would go silent during the tweak (very annoying). This was no longer the case in X2.
 
X2, for me, was better in many ways than X1. However it does still have a ton of annoying glitches. Just not audio dropout related. More graphical and user input weirdness.
 
/rambling old dude story

Beepster
 
/rambling old dude story

OK, that make me laugh.   
 
Not that I'm old or anything.    At least not to sexagenarians or above.