This should fix it.
Go to Volume Control in the system tray or if you like me and have the icon desabled
Go to Start---->All Programs------>Accessories------->Entertainment------>Volume Control.
Then go to "OPTIONS"----->Properties----->Select Recording and press OK
You will get the mic options. Make sure that it's not on mute, and turn it up until it works.
If this still doesn't work go to the ADVANCED screen below the Mic volume control and check the mic boost option and try again.