You are right, it's not the X-Fi as i uninstalled the driver and it still doesn't work without disabling all sounds. I already had Window Media Format Audio Setup 7.1 installed from the FEAR CD, so i went the the Audio Codec area and set it to first priority, but this still does nothing. I then went to install Windows Media Format Audio Setup 9, but alas still no workaround.
I think it may be an issue with the other codecs i have installed. I will get rid of them all and see what happens. Any other thoughts on the matter would be most w3lcome.