it should work, i play my laptop thru my living room stereo like this all the time.
a) make sure the headphone volume inside the computer volume mixer software is at 100%
b) make sure you are using an unbalanced 1/8" to 1/4" or 1/8 to 1/8 with an adaptor.

if you did all that and it still doesnt work, its a setting in the recorder and you need to rtfm :)

Skimming the manual, I keep seeing the word "OR" for input options never "AND" (Page 3). It doesn't appear to be designed to mix inputs, or set the levels independently - unless I'm missing something.
At some point when you start the recording process, it makes you select an "input source".

dvdhawk has it right - the PMD661 can record from only one mono or stereo source at a time. If you were to use the input menu to select LINE2, you would record the stereo signal from the laptop but not the XLR microphone.

There are several ways to record both the laptop output and the XLR microphone together. However, if you want to continue using the PMD661, the only simple way to do it is to get an external mixer to mix the (mono) mic and the stereo laptop output and then record the stereo mix. You would not be able to adjust the balance of the different sources in the mix after recording.

You should consider whether you want to invest in a mixer or whether to sell the PMD661 and instead go for a multitrack recorder such as the Zoom H4N or the H6. With these last two, you can record 4 or 6 separate tracks which you can mix and blend after recording.

Another (very different) route would be a multichannel interface for your computer.