Latency can only be solved with a decent soundcard, what kind do you have? Have you tried lowering the latency in the sound cards control panel?
M-audio has a good selection of external sound card solutions for home recording. I used one of their cards.. 99 bucks.. before I bought my X-fi. It worked well.
Audio being dropped and scratchy playback is typically due to trying to record and simultaneously playback too many tracks. It is also dependent on your processor so a PC upgrade may also be something you may need to do if you plan on doing any serious recording. Audio is very processor intensive and most times a good PC is neccesary for a smoother audio experience.
One advantage Ableton live offers is the abilty to "freeze" tracks that you dont need to edit therefore removing any extra processing that track may be using and freeing it up for other areas. Rather handy.
WWW Link M-Audio
another good app is Reason by propellerheads shown here...
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