I keep running into the same problem — whenever I try to play music through my mic, all the subtle parts get chopped out or randomly boosted, and the whole thing ends up sounding terrible. VRChat really needs to implement something like proper noise-gate controls where you can set the threshold to 0% and actually hotmic without the system fighting you.

At the very least, there should be a dedicated “music mode” for people who play instruments, use voice effects, or just want clean, uncompressed audio. Right now the clipping is so bad that my output sounds completely wrecked, and it makes performing or sharing anything musical almost impossible.

Does this occur even if you turn down the voice slider? In general, Steam Audio has less compression, which overall increases quality, but can exacerbate the effects of misconfigured microphone setups.