Without wishing to re-open the "which encoder / bitrate is best" argument, I have noticed that some of the default encoding settings in the Phatnoise software are not always the best that are usable. Have you tried different bit rates, MP3 ws WMA?
Of course, "hollow and echo-y" could point to some other problem, possibly in the cabling.
Another possible cause would be if you had taken audio compressed elsewhere and then re-compressed using the Phatnoise software. This would often sound as you describe.