Is this on XP? One thing to try is to click on Recording Controls from VinylStudio's Check Level dialog and mute all sources except Line In. Other than that, I'm not sure. What sound card do you have? You can check this via My Computer - Right Click - Properties - Hardware - Device Manager, and look at what appears under Sound, video and game controllers.
If you are really stuck, a replacement sound card would be cheap and easy to fit (unless you are running on a laptop). Hope this helps.