When using my microphone, the microphone level automatically adjusts.

Solution: possibly.

I had scanned for malware and AVG didn't find any. Following a suggestion elsewhere on this issue I install the free trial version of MalwareBytes-Anti-Malware. This found a number (over 1600) files but removing those files did not stop the problem. Running it again later more appeared including PriceGong. I found references to this in the registry and manually deleted them. MalwareBytes requested a reboot.

One of the background tasks running is PMBVolumeWatcher. I used task manager to close it down and also removed it from the start up list (using msconfig). This is part of the Sony application Photo Manager Browser and has been replaced in 2012 by "PlayMemories Home".

Between these changes the microphone now behaves itself. It no longer resets and mutes the volume level.

Removing PMBVolumeWatcher may have had nothing to do with the issue and following a reboot, requested by MalwareByte,s and reloading PMBVolumeWatcher I still have a stable microphone connection. 

Exactly which of the changes or amendments "fixed" the issue I don't know. It is worth while to run AVG and MalwareBytes-Anti-Malware and remove any problems found and reboot.

I do not believe this problem - mic volume level dropping to zero and then muting - has anything to do with settings for the micrphone, webcamera microphone or applications such as Skype.

I don't think this has anything to do with Skype unless some properties are left even with uninstalling it.

I have four "sound systems" on my Win 7 64bit ultimate PC.

Connected TV graphics card HDMI.

Terratec 6Fire USB, 

the motherboard Realtek

the webcam mic.

I uninstalled the web cam software. I uninstalled the Terratec software and unplugged all USB devices except mouse and keyboard.  Disabled the graphic's card sound. I disabled all sound features of the Realtek except the microphone.

From Control Panel - Sound - Recording tab - select Microphone - click properties - click tab level. Change mic level to 100% and remove the mute. 10-30 seconds later level drops to zero and the mute is activated.  Unclick mute readjust levels to 100% and repeat every 10-30 seconds until it is dead that is no green bars. Fix this by unplugging mic and/or rebooting.

Installed webcam, disable Realtek mic. See the level on the web cam mic adjust automatically to zero and engage mute.

One suggestion is a virus - AVG didn't find any.  Ran a fix on the registry. Still the same problem. I have another Intel motherboard system with similar software (no Terratec USB sound system and a different Logitech web camera). It works fine. Even plugging in the same web camera and microphone.  Runs the same version of Skype (which I uninstalled on the faulty system). Even with setting all the auto adjust properties in Skype, checking all the boxes other posts tell us to uncheck.

The system - in this hardware configuration has been running for over two years without issue. Unless it is a hardware failure (feature fault) or one of the updates which seems unlikely as the problem has been reported for several years.

I might be forced to try a complete system disk format and re-install but this takes days to recover and weeks to get it to stop updating when shutting down and re-booting. There is nothing to indicate that the same fault will not re-occur if it is down to an update or a particular application being installed.

Chris also assumed the OP was using Skype whereas s/he was actually using MSN Messenger. The auto-volume thing was a pain in that program.