Sunday I came home from work to play some games and I found that my speaker volume knob was turned to the max. I thought nothing of it and turned it down and used my headset. I can hear everything fine its just that I can't use my microphone because whenever I talk the playback is a very loud horrible scratchy sound.

I went to the sound troubleshooter and it describes this as "Sound Distortion." It's some kind of mismatch between the computer's volume and the output device's volume.

Has anyone dealt with this before? Any tech wizards who can help me?

Check your settings to see if reverb or playback got turned how some how.

Max out your windows volume controls and use your headphones'/speakers' built-in volume knob to control your sound.