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I've found cassette adapters *often* distort at 0dB. In fact, I usually leave my iRiver at -20 and it's much more suitable.The distortion is caused by the adapter though, as the same unit at 0dB into a line in has no problems.
I think you'll find that if you play your music through the headphone socket instead , you'll get no distortion.
So my conclusion is the output from the line out is different from the headphone socket and small speakers get overloaded when using the lineout.
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