It's been awhile since I've messed with it so I can't remember if I am supposed to be able to hear the Decklink output as I digitize in Final Cut Pro or only monitor the input. Monitoring the output would seem to be the optimum way to digitize.
I have Decklink Extreme card.
I get playback from my sequences fine.
FCP settings and Mac Sound preferences are both set to "Decklink Audio".
I get input audio and levels fine in Log and Capture mode.
I FINALLY SOLVED THE PROBLEM!!!!!!!!!!!!!!!
I disabled "Set Black Video Out To Deck When In Capture" in the Decklink control panel. It's default is "on analogue out". Since I am using a black burst generator already, I don't use the default.