That's strange, doesn't do it on mine.
Might depend on hardware i dunno, but i can say that i make sure to set stereo mix to 2 channel 16 bit 44.1khz. It seems as if your card is recording their voice as it comes in and when you play a line yourself it becomes distorted. I'm running windows vista x64 and i can't remember if you can change the sound values of stereo mix, changing values to highest settings seems to reduce distortions when there are multiple sources of audio.
Date of birth this afternoon lol.
The sound seems a fair bit different to how it sounds on mine though. Could have something to do with playback and recording audio, if you set the recording audio to highest value in skype, 15% in windows, 50% volume in windows and 100% in skype it might work. I have been on the line with torico in the past and we were able to interrupt each other fine even with both of us on stereo mix.
There are many factors that could cause your sound to break. That was an interesting prank btw, just ended lol. "that was her decision, what a doll, you know what i mean?" lol.
I am sorry if nothing i have said helps at all, quite some time ago when me dr martini and my brother were all pranking together, i noticed that DrMartini cut out a lot whenever i said something lol, but never the other way around, i wonder if he has that sorted now, maybe you could ask him too
OPTIONAL**May or may not sort the cutting out, could be related to cpu instructions in the audio card.
Another thing you might try is using a laptop or another computer and connect the line out to the 1st pc via line in. Then on the first PC you set it to use stereo mix and set it to play sounds through line in. Then on the 1st Pc you can run skype and capture the audio while on the 2nd using the board.