Maybe try moving the Soundblaster card to a different PCI slot inside your computer, if you have any free (or shuffle a couple cards around). It sounds like you might be having some conflicts with another device, and Soundblaster cards are notorious for causing issues.
Are you using the latest drivers available?
I'm surprised you're seeing clipping with levels that low-- are you plugged into a portable cassette player's headphone jack by any chance? Be sure that's set at a low level. Try doing a test recording turning the volume on the cassette up and down, and changing the SoundBlaster line input up and down, and see if you can see a different wave pattern in Audacity after the recording. (i.e., be sure it's responding)
Also, sometimes you have "2" recording level settings-- a master recording level, and then a level for each individual item. Be sure ALL OTHER inputs are set to "mute" (however you do that with your card, I haven't had a Soundblaster in years so I'm not sure what to tell you) before you try to record. And be sure the master recording and line-in recording and set around the middle somewhere as a baseline. If you have to turn them all the way down (I'm not sure if by ".1" you mean the very, very bottom, or at ".1db" which would be VERY loud -- if you're setting by dB, set it around -3.0 or -6.0) and you're still maxing out the input, something is wrong.