Windows 7 looks like a service pack for Vista, but it doesn't fix the audio recording problem. Micro$oft Evil Corp. is purposefully preventing us from recording sound (Time to switch to Linux may be?)

First of all you need to try to enable the "Wave Out mix" ("Stereo Mix", "Record What you hear"):

1. Go to the Control panel and double click the "Sound".
2. Select the "Recording" tab
3. Right click on the background of the tab and select "Show Disabled Devices"
4. Find the "Wave Out mix" ("Stereo Mix", "Record What you hear") item, right click on it and select Enable.
   Now you can capture audio from any program in Windows.