Audacity does some wierd stuff, it converts it's file to a special format and 
tries to stuff it all in memory, which may also be why Leo's getting 
artifacts in 20M files.  I suspect the size limit has more to do with free 
RAM than processor power.  

Using gramofile, and using some Windows products before that (Roxio and 
others), I've never had a problem getting a full album side, even on my 
500MHz machine, which had about 384M of RAM.  It sure is nice to have 1.2GHz 
and 512M of RAM when it comes time to load and/or process a file as big as an 
album side though.

As far as connections go, I recommend against relying on advice from someone 
who only knows enough about stereo gear to sell it.  Get your advice from 
someone who either uses the gear at least semi-professionally, or someone who 
works on it.

Your best connection for digitizing audio from the stereo will be either a 
generic "line out" jack or a "tape out" or "tape record" output.  This 
bypasses the final audio amps, the tone controls, and the volume control, and 
gives an industry standard output voltage at a reasonably standard level.  
Using the headphone out could actually damage your card, as would connecting 
the speaker outputs to the card.

Most sound cards these days automatically detect the input level, and many 
have a single input jack that is both mic and line in.  If you have seperate 
jacks, you do want to use the line in jack, not the mic jack.

You _might_ be able to use a microphone level jack for input directly from a 
phonograph, but as others have mentioned there are equalization problems with 
trying to do that.