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The 'EXT MOD' is an outgoing signal; not for an incoming signal.  You might want to read the owners manual.


http://www.freeinfostuff.com/E200D/e-200d_manual.pdf


E-200D 1KHz Modulation


If you turned down the radio volume; then the incoming signal is distorted because a) you have the output too high from the sig/gen b) the radios audio output signal is noisy c) Q9 is having thermal issues (most likely).


http://www.freeinfostuff.com/E200D/e-200d_bulletin.pdf