Yes to selecting the correct device, it is as follows:
Choose Mixer Device - SB Audigy Audio [C0000]
Choose Audio Line - Line-In
When I click pause in MC the Line-In channel is not muted. This is the correct source as this is how the Radeon is connected to the Audigy. A little more info here is that it does not matter what source (Line-In, Aux, CD, etc) I select, I still have audio from Line-In. It appears that MC is unable to control the mixer in my case. I have a fresh install of the creative drivers and the fact that other applications are able to control the mixer indicates to me that this is a MC issue. Perhaps this evening I will put the SB Live card in and see if it works with MC, unless anyone has any suggestions on how to get MC to control the mixer. Maybe I need to do a fresh install of MC??