I've wondered the same thing, myself. Personal advice: I wouldn't try that headphone to microphone thing, because if Windows automatically plays back that microphone input, you've just created an infinite sound loop ! (Not a very good thing to do, especially when you go to play it back . Also, it would be rather hard to hear the sound you're recording in that setup.
I don't know about the 8887's controls, but I know that on my home computer with a SB Audigy, you just open the Sound Control properties, click Options->Properties, click recording, and select "What you hear". That records everything that comes out of your computer.
BTW, what are you trying to do to record what's coming out of your computer? If you want, you could try Winamp 3, and set it to output to a WAV file.