Please don't take this wrong but are you sure you have the line in plugged into "Line In" and the phone handset plugged into "Phone".
What you described could cause both problems. The other possibility is another phone, most likely with an answering machine attached or internal. Disconnect any other phones in the house and see if the problem disappears and then, if it does, replace each phone one at a time until you hit the one causing the feed.
