SBLive: All system sounds broadcast over mic?!

[stultus]

My friend is running Win98 SE and an SBLive 5.1. Whatever is being played through his headphones (system sounds, sound effect in games, etc) is recorded/broadcast through the mic and over our voice chat communication software. Does anyone have any ideas what's going on? I've never heard of this.. makes me think it's some software-based setting.