Whats wrong?

If you sort your system out (not sure your choice of source will ever sound that great) your speaker upgrade will be stunning. 86 the EQ and get a decent preamp for starters.

You cant expect decent sound from a computer...and I hate to be blunt...but your system is only as good as your source...dont try to cut corners...you can pick up a used Rega planet for around $300...some dh labs cable for $100...and a NAD c370 intergrated for around $500...this may seem like alot...but with decent speakers...such as the baby mags..."garbage in/garbage out" is an understatement...also...the MMGs are really designed for small rooms... the sweetspot is already pretty narrow...and smaller Mags have little vertical dispersion and limited bass...but even with these drawbacks...when set up correctly...their strenghts....transparency,imaging,detail,speed,etc...will far outweigh their limitations....

use the digital out, make sure your S.card is 24/96, get a 24/96 DAC. Sell yur parasound, and buy some other brand, parasound can be okay to stay if you dont have much money change your cables to better one, at least not the one which is made in Taiwan. Take away the EQ and try to see if you hear more stuffs. speakers... you like bass? if you do, then these speakers dont belong to you... you like mid and soundstage depth? then they are fine...

best sound card Creative 24/96 5.1 channel platinum something... I forgot, $200 and change... a lot of output and it's in the front, easier to play around

ALso..dont play mp3s...these sound worse than am radio