It's the multi-function sound card
I have found that you can not use the built-in microphone, or any other microphone at the same time you are using anything more than the 2-speaker setup using the built-in sound card.
When the 8790 is set up in either 2-speaker or headphone mode, go test the mic using the new Windows utility in WinXP/SP2 or the utility in any game like CS and it should work fine (as long as it is not 'muted' elsewhere.)
But as soon as you change your sound settings to a 4-speaker mode or 6-speaker mode, the microphone will no longer work. Not for the built-in mic nor an external mic plugged into the front jack.
It is apparenty part of our multi-function built-in sound card and it's limitations. There is something about the sound channels that block off the mic as soon as the other channels are needed. I'd be shocked if the new drivers actually changed this limitation, but would love it if it did.
The only way I have found around this is to use an external USB sound card.
The new CS:Source has a very good sound checking utility built-in that helps verify these confusing and unfortunate conditions. Who wouldn't want to play CS using 4-speaker surround AND the microphone at the same time?