If you click the settings wheel in the studio and open the "Audio" section, you will see the option to turn off "Echo cancellation". Echo cancellation applies a couple different audio processing effects, mainly compression and adaptive noise suppression. For podcasting, interviews, etc... where background noise can get out of hand, this feature is great! But for music, the compression and noise suppression can sometimes muddy the sound.
If you use a stereo mic, also enable "Stereo audio"
If you have guests, make sure you are wearing headphones. If you have a guest with headphones, they can turn off echo cancellation for themselves as well.
