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This is the Audio Device Graph Isolation service, a part of Vista and 7's audio services. The real audiodg.exe is harmless, but like any file it could be infected. If it's not doing anything, it should be fine. The worst that can happen by ending it is your audio goes out, restarting your computer would fix that.
Recording automation filter - The Transport Panel Record Button has a recording filter (Right-click to view). The options set the data types that will be recorded - Audio, Score and/or Automation data. Make sure the Automation option is selected. You may want to turn off the Automation recording if, for example, you want to tweak project or plugin parameters while you are recording audio/score data and discard those tweaks.