Ok, so I hooked up the empeg through a line-level input (CD, since I have a DVD/CD combo). Wow, all the distortion went away. In my defense, though, the manual mentions nothing of the phono input being amplified. But, Rotel is pretty barebones when it comes to their documentation.

Here's my thoughts on some listening tests:
I put the original WAV as well as a LAME VBR version on the player. I also put the CD into my DVD player. I started the empeg and the CD at the same time so that I could flip back and forth.

I have to be honest when I say the empeg doesn't compare. The empeg (playing the .WAV file) sounded way flat compared to the CD. Dynamic range was significantly better from the CD. Everything sounded crisper and cleaner. The VBR file sounded exactly like the .WAV file, and the compression was approximately 7:1.

But, I think it's somewhat unfair to compare the empeg which is using regular old RCA interconnects to my DVD player which is using digital coax and has a 96khz 24-bit D/A converter.

So, I stopped comparing the two and decided to listen to the empeg. Ignoring everything else, the empeg sounds great! I'd compare the quality to what the CD sounds like on my Pioneer system. No distortion or clipping. I think you really need to sit down and listen really carefully to hear any noticeable degradation of the sound. Since I don't normally do this, I'm perfectly happy with the sound of the empeg.

So, in conclusion, part of the problem of having a good stereo system is that you tend to notice the inferiority of other products. I in no way mean to say that the empeg is a shoddy product. Merely that I tend to notice things on my system, like which CDs were produced well, and which were done in a cheap studio. And, although I'm sure we all would love to have an empeg with optical out and whatnot, it's more than advanced since its main objective is to play a lossy compression scheme.

Hope none of this came across poorly. Just observations.