Distortion should not be introduced by the Liquid Channel until the O/L LED lights. If this is not the case then make sure the harmonics knob is set to 0, the compressor and EQ are not switched in and test all three inputs (mic, line and AES) to see if the problem occurs with all three or just one. Also check to see if the problem is only with transformer based mic pre emulations (indicated by the transformer LED). Ensure that the input sources you test with are not at fault - if the problem only occurs with one of the inputs then check that the input source for that input is not faulty by testing it with a different device. Also it is always worth checking that all cables are in good order if any noise or distortion occurs.
It may be that the Liquid Channel output is clipping the input of the receiving device. The maximum analogue output level of the Liquid Channel is +22dBu (with no processing engaged). If the next device in the signal chain has a significantly lower maximum input level than this then you will find that you have to set the input gain on the Liquid Channel lower to compensate. Be aware that if the compressor or EQ are switced in and the make up gain or eq gains are set too high then this may be causing the next device in the chain to clip the signal.
If you have tested the above and continue to have a problem then please contact us for further support.