You need to unmute stereo mix in the sound properties.
In XP:
1. To do this, right click on the volume icon and select open volume control.
2. Click on Options on the menu bar.
3. Select Properties
4. Select Recording or change the mixer device to your input device
5. Make sure microphone and stereo mix are in the "Show the following volume controls:" section
6. Click OK
7. In the Recording Control window, it depends on your sound card. Some have you select which inputs you want to allow in. Others make you mute the ones you don't. Regardless, you need to make sure stereo mix is selected or unmuted.
Stereo mix basically connects the output to the input in the sound card. It will allow you to record "what you hear." I hope this helps.
Note - While I am recording my stereo mix on, I cannot use vox in game. Test it out before you try it by tuning channel 5 to your name.