My headphones are connected to Speakers (G510 Gaming Keyboard), which is my default audio playback device. I was encountering a problem where I did not want my Skype conversations to be streamed when using XSplit. But XSplit seemed to pick up whatever was going through the default playback sound device.
In order to resolve this I installed Virtual Audio Cable and performed the following steps:
3. I changed my Game Client (in this case Heroes of Newerth) to output to Line 1 on the Virtual Audio Cable device: