Whenever I change it to this setting, the audio is incredibly choppy. Can anyone offer some insight on why it does this or maybe how to fix it? I'm using the Elgato Game Capture HD.

Just want to add that both my Live Gamer Portable and PEXHDCAP (via Sync Strike) have a similar issue.

It seems that it's an issue with OBS itself, as I've found no way to fix it.

I've never really noticed that, but most times I just have it output to stream/recording only as I play the default sounds through the tv/monitor and just have audio cancellation and noise gates setup properly to compensate for it.

Maybe the new OBS rework will have that issue and the slew of others they are working on for the Multi-platform version.