P.P.S. Funny high pitched sound is gone when I use direct monitoring so it's not in the actual input signal.  And again, there's this funny gating behavior where the volume of the high pitched sound is following the volume of the bass, only in the digitized signal tho which is what SONAR played for "Input Echo" and what it records.

Cakewalk tech support said to use MME and I'd already followed the advice here: http://www.cakewalk.com/Support/hwsetup.aspx?dm=alesis&man=Alesis 

Tech support also said IO2 ASIO drivers are not "true ASIO", just shims around the MME driver.

Wrt to hijacking, I picked this thread because it seemed to be about exactly my problem and some forums like you to show you've read past postings first and discourage starting unnecessary new threads.  I don't care, I can do either.  I think of hijacking more as drifting off topic on a thread.

Tonight I ordered a Tascam.  Maybe it will work better.  I flailed trying to get Alesis to run reliably without dropouts so who knows, I've probably ended up with some obscure non-default setting.  Worked fine with the Cubase demo that came with the IO2. 

Computer-based recording is awesome when it works but my old Fostex 8 track had certain good points.

Going back to ASIO driver mode got rid of the high pitched sound and seemed to take the Win7 record level control out of the picture.  But the drop outs are back bigtime.  TASCAM on the way.  Sheesh.

Is there a way to adjust the level of the input signal, you only get a three-color LED peck.