I was using the Logitech Webcam Software (with a Logitech webcam), and was unable to access audio from a microphone plugged into my microphone port.
After various attempts at troubleshooting this issue, and uninstalling other applications I suspected were causing the problem, I noticed in Programs and Features (of Windows 7) a listing for "Advanced Audio FX Engine" from Creative. I did have Logitech and Creative software installed on the same computer. It appears that installing the "Live! Central 3" software also installs the "Advanced Audio FX Engine".
My external microphone, which will not work with the Logitech software, will work with the Creative software.
I uninstalled the Creative "Live! Central 3" software. After being offered the option to restart Windows...I had a hunch I was on my way to resolving the problem. I restarted the computer, and noticed "Advanced Audio FX Engine" was installed...I uninstalled that...and again was offered the option to restart Windows.
And also now...Sound Recorder is able to record from the external microphone (it would not before I uninstalled the software from Creative).