Phil,
the only way I could get my microphone working was to boost the volume in windows. During the sound testing, if you see no movement of the volume bars, click the volume button. On the microphone panel, on the bottom is an advanced button. Click on that and select the microphone boost selection box on the bottom. Proceed with the rest of the test ans save the settings.
In the game, select the V channel and type in your own handle. Broadcat something and you'll hear your own voice (delayed). In the voice preferences, there is an option for use wave in. Try selecting or de-selecting this and see if one or the other works better for you.
Hope this helps