If you can't select "Wave Out" or "Stereo Mix" is listed as the input source in the mixer toolbar of Audacity, you can still record with Audacity. You just need to install PulseAudio Volume Control.

How to solve the Audacity recording problem in Ubuntu 9.10 Karmic Koala

1. Install PulseAudio Volume Control by running the following in the Terminal:
   
   Code:

   sudo apt-get install pavucontrol

2. Run Audacity and
   1. Go to Preferences by pressing Ctrl+P (or select "Edit" -> "Preferences..." from the drop-down menu).
   2. Click the "Devices" .
   3. Change the Playback device to "pulse".
   4. Change the Recording device to "pulse".
3. Open PulseAudio Volume Control ("Applications" -> "Sound & Video" -> "PulseAudio Volume Control") and leave it open.
   The first time you use a recording program you need to to edit the recording settings of PulseAudio Volume Control. It should remember your settings after rebooting.
   
4. Open Audacity and hit the "Record" button.
5. While Audacity is recording, open PulseAudio Volume Control and select the "Recording" tab. It will show "Alsa plug-in Audacity. Alsa capture from" and a combo-box. Choose the "Monitor of internal audio..." if you use an internal sound card.
   
   Note: You need to select another monitor if you use any playback device other than an internal sound card. For example, when I play sound with Microsoft LifeChat headphones connected to my computer via USB, I select the "Monitor of Microsoft LifeChat Analogue Stereo" to capture from it with Alsa.
6. Check Audacity, it should be recording now.