I listened to the clip and it either is not pronounced enough to hear or it's exactly as I would expect.
The Freqbox should possibly be renamed 'racket'-box; if fed the "wrong" signal, it is going to sound like random crap (a technical term).
But all kidding aside, you need the perfect combination of a strong enough signal, and a large degree of clean harmonics in order to produce something that might seem pleasing to the ear. On the other hand, it can be used to create havoc, if that is the intent.
I've found that a good mix of "MIX" on the FreqBox and a filter or Murf to follow cleans it up to a nice distortion.
As an OSCillator, it works really really good but that's feeding it a control voltage in the FREQ input so that's a somewhat different function. I've heard demos where folks have fed clean sine wave into the audio input and the result is very predictable, controllable, and pleasing.
I'm a bass player by trade and I can tell you that it's major havoc. I prefer a fuzz (the TC Electronic MojoMojo pedal) to the outright distortion that the FreqBox provides but it has a nice envelope follower and the OSC function that I mentioned above so I'm keeping it for now.
You might find that a compressor in FRONT of the Freqbox and a filter after is just what you needed and will give you the crunch that you might be after.
EDIT: I just tried something out using my Little Phatty and it's 'calibration' preset into the Audio in and something struck me. It's to give you the following advise. Rather than trying to clean up and deal with a tone that you don't like, start with something simple and figure out what it is that makes the FreqBox behave the way it does. From there, you'll be able to much more easily deal tailor the resulting output.
I'm also reminded of something that either Bob Moog said or Cyril Lance or Steve Dunnington or Brian Kehew said (I know, that's a bunch of different people) but it went something like this "we like to give the musician as many knobs and controls as possible with as much range as possible so that there are no limits to the music that can be made". That's not a direct quote, I just put it in quotes to give you the rough idea of what was said, but my point is that the FreqBox has many many combinations of signal and settings that result in dropouts and crackle as you said. I suppose they could have give you a much smaller range of sweep on the pots but it wouldn't have been the same.
I hope you get it working to your liking. I've seen a number of rough demos on YouTube and very few good ones. I think it comes to patience and persistence.
Moog Voyager Old School, LP Tribute, Taurus 3, Opus 3; Ob: Matrix 1000 and SEMs; Blofeld; too much modular stuffis; Kurzweil 250; Hammond M3; Fender '75 Jazz, Tony Franklin Fretless Monster; MusicMan Stingray; Mesa Amps; MF101,102,104M,105M,MP201