I connect my md to pc using a lead that plugs into my md headphone socket.Then the other end of the lead plugs into my pc's mic socket.
This is the source of the hiss.
Ideally, you want to send the data from your MD to your PC purely in the digital realm, for example an optical connection between MD and PC. Though odds are your MD doesn't support this, and you'd likely need a soundcard on the PC side.
In the case you outlined above, you're taking the digital signal stored on your MD, converting it to analog through the headphpone output (which may or may not be decent quality), then sending it in through your PCs definitely crappy mic-in and re-converting to digital with the PC's crappy analog-to-digital converter. The mic- and line-in and the analog-to-digital converter built into stock PCs generally stink, hence the hiss.
If you don't have the budget to pick up an MD recorder that outputs optical, and a soundcard that will receive the optical signal - and not everyone does, no biggie - Roving Sign made some good suggestions on how to maximize your quality using the gear available to you.