Where it says ‘DigitalIn’ this will be your soundcard’s external digital input, SPDIF or something. If there’s an AudioIn option there, choose that.
Otherwise it’s an issue with your soundcard’s driver, you need to make sure in any driver panel you have for your soundcard that StereoMix or What You Hear is enabled, and being ‘listened’ to. I know it’s vague but it really depends what soundcard/driver you’re using.
Also you should turn up the volume on Winamp to monitor the audio at the correct level.
That’s a classic annoying thing in Win7, the card in/outs are always hidden.
The noise is the Realtek card being cheap and dodgy, i think. I get quite a lot of noise when nothing’s playing on my laptop, but it’s at most 5% of the volume of normal music, and isn’t there when any audio signal is being processed. I think it’s just poor performance from the audio card.