Microphone strongly distorted except from realtek playback

Basically when I try to record my voice all I hear is very strongly distorted sound, no speech is recognizable. I tried updating drivers, all mic settings I can think of but with no success.

When I open the Realtek manager and click the icon for playback on my mic settings the audio is crystal clear, and if possible I would like to have this instead of what is actually outputted. I dont know how to set that working :(

I clicked to "Listen to this device" and all I hear is VERY distorted sound, no speech is recognizable.

So from what I understand the mic is perfectly fine, the drivers should be fine but the quality that is outputted is terrible. Is there anyway to output what I hear from the playback on realtek?

Im attaching quick screenshot with some more explanation:
http://imageshack.com/a/img661/8384/lIZQ9x.png
 
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