Some internal sound cards you can get are actually quite good. And a computer-based recording system doesn't have to use an internal sound card. There are outboard pre-amp & a/d converters that are basically as good as it gets.
Only if you're recording right next to the computer. No law says you have to.
Don't forget that most records that are being made these days are being done on the same computers people are typing their term papers and e-mailing their grandmothers on. Most studios here in Nashville are using Macs or Windows PCs, not standalone recording devices.
JJ
Yeah... and ProTools. The computer is in a control room that is away from the performers and everything is sound-proofed in the recording area. There are also flat reference monitors and high-end replicating gear. So, you, too, can do that if you put an $100,000 into the entire building, equipment, etc.
I still think that stand-alone recording gear beats a PC or a MAC, but since virtually everyone at that level is using ProTools, they are all using computers.
As for the sound cards, most are half-duplex or simply full-duplex emulation (like Sound Blaster Live Platinum was, for example). Really high-end cards use break-out boxes, like you suggested, but, still, there is RF interference, system noise, cooling fan noise, and multi-tracking is much harder, especially on a Windows system. MACs handle it better (they were better multi-tasking systems with the IBM/Motorola Power-PC processors but Steve Jobs wanted more profit per box... so they went Intel).
In the last issue of Ukulele Player Magazine, I had an article on digital recording where I addressed the issue of signal-to-noise-ratio. That is a factor in many cards because they route the incoming signal (which was clean at one time) through a DSP (digital signal processor), which adds a lot of white-noise. So there are lots more issues with a PC.
A stand-alone recording unit is much easier for the average user to get a good result.