Mike,
This may be a limitation of the sound card. I have never tried this, so I can't offer any advice on trying to record and play at the same time.
What I would suggest, instead of spending all that time trying to write C code to do what you need, is to spend a bit of money and either get a second sound card, or better yet, a DSP card. NI has some really good quality cards, and some are fairly inexpensive ones at that. The added benefit is that you get a lot more resolution.
Good luck, I hope that helps.