EDIT: After updating this post, it is probably best to try the recommendations from the bottom paragraphs up.
Did you update your WiFi driver? Not for streaming, but to eliminate DPC Latency which may be affecting local file playback in this case.
What was the results from the DPC Latency Checker? Does the fading correspond with hgh latency spikes? If so, you'll need to troubleshoot by disabling drivers as discussed on the software's web site.
Are you using any other Sound Enhancing software besides the Realtek Audio driver? Since you report an equalizer in the Realtek HD Audio Manager, I imagine you've uninstalled the Creative THX TruStudio application, but I'm wondering if remnants of that app remain and may be causing your problem? I'm unsure what ASUS installs on the G53SW systems, so this paragraph may be irrelevant.
In the
http://www.asusrog.com/forums/showthread.php?1150-G73-74-53-Series-Driver-and-Application-Reference Sticky, I see SW systems have a "Creative THX MUI 1.02 Package". Is this installed on your system? If so, does disabling or uninstalling it resolve this issue? If you have an earlier version of this Package, does upgrading to the 1.02 version resolve your issue?
If you go into Sound Properties, right-click on Speakers and choose "Properties" from the popup menu, and select the "Enhancements" tab, is the "Loudness Equalization" checkbox checked? If so, UNcheck it. You could also try checking the "Disable all sound effects" checkbox.
I'm puzzled that the fading in and out is not reproduced by the built-in speakers, unless they are just unable to reproduce the subtle effect. I wonder if it could be an audio jack grounding issue or you are not getting a good contact at the jack? If you wiggle the headphone jack slightly when it is plugged in, does it affect the sound quality?
Here is another suggestion from
http://answers.microsoft.com/en-us/windows/forum/windows_7-sound/automatic-volume-leveling-during-au...1. Go to the sound icon on the system tray, right-click, and click Sounds;
2. Click on the Communications tab. On this one, you will see:
Windows can automatically adjust the volume of different sounds when you are using your PC to place or receive telephone calls.
When Windows detects communications activity:
o Mute all other sounds o Reduce the volume of other sounds by 80%
o Reduce the volume of other sounds by 50%
o Do nothing
3. Select "Do Nothing", then try and check if it works.
It sounds like this wouldn't apply unless you use Windows to make phone calls, but give it a try for troubleshooting purposes. At least 2 other people indicate this settings change resolved their "volume fade in and out" issue.
The above-referenced thread is quite lengthy and may offer other potential solutions if you read through it completely.
G74SX-A1 - stock hardware - BIOS 202 - 2nd Monitor VISIO VF551XVT