I have my HT headphone jack plugged into my PC microphone jack. I can see audio in the Microphone status, and DSD+ shows a waveform - but it is not decoding.
DSD+ shows my Microphone is the input, and my Speakers as the output
No. It's because the headset jack has filtering that makes the audio more pleasing to the ear. This also makes the waveform unusable by DSD. You need a discriminator tap. What receiver are you using? There are a couple that have built-in taps, but I suspect you are not using any of those models.
digital audio has very sharp waves and like he said audio out of the speaker/headphone jack has been filtered and made less sharp so its easier to hear and understand