Interesting to see this still floating around after 2 1/2 years!
Lots of interesting tips but most made me feel as if I'm on a different Windows 7 from the rest of the world!
Rog – when I go through the procedure you have outlined, I find no link to 'stereo mix', only to the internal mike and to an external usb mike which I usually use.
The only situation to work for me is to have a double mini-jack adaptor in the speaker socket. I then have a link to my external speakers/earphones and another lead to the mike input. This really gives me all I need.
The other recording programs folks mentioned throw up exactly the same problem as I continue to have with Adobe Audition.
I'm inclined to the first reply I had back in 2010 in that I don't think MS want us recording from the Internet.
Hey but thanks for the suggestions.

Eddie