There are a few ways you can solve this problem, and it really depends on your specific mixer & how many monitoring options it has. I have two recording systems - the main one with an Alesis mixer, and a small one with a SoundBlaster/Behringer 802 mixer. I have them wired differently because I use them for different things. Regardless, you don't want to be putting the playback through speakers while you are recording. Even if it is not "feeding back" its still going to bleed into the mix. You should be using headphones for monitoring during the actual recording.
If your mixer is like my Behringer, you have your main outs, your tape outs, and your control room out. Plus headphones tied to the control room out. And you may have channel direct outs, and additional monitor or auxillary sends. Then you have your channel inputs plus tape ins. Your mics and sound card line out should be feeding channel inputs. Your control room out should be feeding your monitors. Your tape out should be feeding the sound card line-in. You could also use the main out for this, but on the Behringer mixers the main out is +4 balanced, while the tape out is -10 unbalanced. Basicly this just means that the tape out is a better match for your Soundblaster.
The Windows mixer applet has both playback and recording settings. Unless you are actually recording something, the "Line In" fader on Playback should be muted. You mentioned that you had your mics "muted". You should not be using the mic input on the Sound Blaster at all, just the line ins & outs.
Hope this helps....