Thanks for the DxDiag output.
As I supposed, there's more than one audio device. Check your in game audio settings as I previously suggested. It must not be the "digital" option, it has to be the High Def. Audio without the word "digital".
Also, I noticed your audio drivers are provided by Microsoft which I believe means you haven't installed the dedicated motherboard audio drivers, or Windows has automatically "updated" them to generic ones. While installing the audio drivers you might want to do the same to all of your motherboard drivers.
As a side note you might benefit a little by doubling your system RAM, too, especially if you can get it for next to free from an abandoned computer. Your 32 bit OS doesn't allow for more so going past 4 GB would be a waste of resources.