To record do the following,
- Open Sound Recorder from Start->All Programs->Accessories->Entertainment->Sound Recorder or by typing sndrec32 from Start->Run
- In the Sound Recorder window, Select Edit->Audio Properties (as in img1)
- Click on Volume (as in img2)
- You will get a window (as in img3). Click on the checkbox below the 'Microphone'. If you do not see microphone in this window, click on Options->Properties to get screen like img5. Check Microphone
- Close all open windows other than the Sound Recorder and Recording Control
- Press Record on the Sound Recorder while adjusting the level of microphone on the Recording Control window.
Hope this helps...