It is the mic in the LifeCam VX-1000 and I'm running Windows XP (yes I know).
It works on Skype and I just tested on Audacity and it records my voice fine, so its not a problem with the mic.
I've had it working in Dota 2 before, so I'm not sure what it could be.
Sorry if this has been covered already, I couldn't find anything.