Ironically, I'm Peter O and I have basically the same setup you do.
I have Cakewalk Pro Audio 8 with a SB Live! However, I use a Peavey RSM
mixer. I'm sure the connections are somewhat similar. First things first,
You need to come from your mixer to the Live! as you are but from a different
output on the mixer. You need to send from
an Aux 1&2, Sub, or Group output and
not the L/R main outputs. Preferably something you can PFL so you can monitor levels. Hook up your monitors to the L/R outputs.
Use one of your channels to return from the Live! So, if you have
a 12 channel mixer
you'll only have 11 channels available. Make sure you don't send this channel to the Aux type output you chose to go to the Live! with. On the channel that you're recording,
send that to the Aux output (or whichever you have chosen). If you want to hear
it as well (can't do this with mic'd material) while your recording send it to the
L/R output too and it will come through your monitors. Did I explain that
well enough? Didn't want to get anymore long-winded than I had to.