It could just plane and simply be broken.
Go to Start>Settings>Control Panel>Sounds and audio devices.
I'm not exactly sure where to click here, as my headphones are not working at the moment either, but from past experience, I clicked somewhere you could talk into your michrophone to see if it is realy broken or not.
In here, your michrophone can also be muted, if it is, just change it so it simply isn't.
Scott, September 2006
