The first problem I see with this is that you're connecting the head unit's "amp out" directly to the empeg's "aux in".

Yes, if I turn the volume on the Bose HU up past about half way, it starts to distort. So I just keep the volume on the Bose HU at half all the time and use the empeg's volume knob.

I've been using it like that for about 4 months now and it works well. I don't often switch to radio or CD, but when I do, it works as expected.