The tape jacks switch is used only for the two tape jacks on the front panel and (unless you're using the front-panel jacks) should be left in the playback position for all sources.
If you just want to use the Nak for playback, the way you have it set is OK and is working correctly.
If you also want to make recordings with the Nak, you need to connect the Nak output to the HIGH LEVEL INPUTS: TAPE MONITOR RCA jacks on the C22 back panel. Run a second interconnect from the OUTPUTS: TAPE on the C22 back panel to the line level input on the Nak. You then set the tape monitor rocker switch on the front panel to "monitor" to hear the Nak or to "normal" to hear whatever the source selector is set to.
Regardless of the position of the Tape Monitor switch, the Nak will receive a signal from whatever source is selected by the source selector. During recording, you can use the tape monitor switch to listen to the source of the recording directly or to monitor the Nak as it records the source. If your Nak has 3 tape heads, you can actually monitor the tape playback (from the 3rd head) in real time as it is being recording by the 2nd head - a feature allowed by the tape monitor switch on the C22 (and most pre amps).