Windows Vista changed the way that sound is played and recorded. This
required the makers of sound equipment to write new drivers.
Many of the first generation Vista sound drivers did not allow
recording from the "Wave Out" (speaker) device. Makers of sound chips
are now releasing new drivers that restore this capability. Please try
these steps to activate the necessary device to re-enable recording
from speakers:
Right-click on the speaker icon in the tray
Select "Recording Devices" from the menu
A window opens. Switch to the "Recording" tab. Right
click in an empty area and select "Show disabled devices".
Different manufacturers use different terminology for the proper
recording device. It may be called "Wave Out" or "What You Hear".
Now that this device is enabled, you should be able to record from
speakers.
Note that you may have to download and install the latest driver from
the maker of your sound card or sound chip before this works, and it
currently does not work for all sound hardware.