I have the exact same problem, am also looking for some help on the matter :(. It was working fine before I reformatted Vista, made sure all the lines were unmuted etc, but now? Nothing. If anyone could provide any feedback it would be greatly appreciated.

Hey people if your sound worked before and you bought a new computer and now it dosnt work
most likley it will be a driver conflict
so either vist does not support the sound drivers for your xbox
or vista does support it but needs a patch to understand where the sound is coming from and how to process it
before it goes out.... i reackon its a driver based problem as always with new configurations check the microsoft website
for updates and make sure your sound card has the right drivers
also check control panel
go to system properties
then hardware tab
click on device manager
when all of your devices come up make sure there is no exclamation marks
next to anything if there is that means the driver for that item hasnt been installed correct or is the wrong one
update driver if neccesary
if everything here is ok check cables and so on this post might help some people it always helps if you can explain exactly what has and hasnt been checked as above because there are so many problems in differnt areas for the same thing

Turn the volume up on ur microphone settings