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**Method 1. Run the Record Sound Troubleshooter:**Open the Record Sound troubleshooter by clicking the Start button , and then clicking Control Panel. In the search box, type troubleshooter, and then click Troubleshooting. Under Hardware and Sound, click Troubleshoot audio recording. If you're prompted
for an administrator password or confirmation, type the password or provide confirmation.Let's cross check if the Sound Device and the Recording Microphone is enabled.
http://windows.microsoft.com/en-us/windows7/Open-the-Recording-Audio-troubleshooter
This method worked for me but there is a catch. If you are using the front panel plug for your microphone, sound recorder requires that you enable the rear input (set as default in Control Panel>Sound). You can then record (although remember
your microphone is physically connected to the front panel).
Meanwhile other applications(Counter-Strike Source, MS Powerpoint, Ventrilo all confirmed) will require you re-enable the front panel plug (set as default in control Panel>Sound). This is probably just an oversight in the OS, since voice recorder has been
simplified and is a minor utility. If you wish to use sound recorder then just remember to switch the input to the rear panel (using Control Panel
not actually unplugging the wire).
It might suit you to just use the rear panel input for simplicity.