I want to share this useful tip I recently learned. As you know Vista and Windows 7 do not let you record from Stereo Mix like Windows XP does. Turns out the feature is still there but hidden as a default. Supposedly some sound card drivers re-enable Stereo Mix, but if that isn't your case then here is what you do:
1. Click the Start Button, type "MMSYS.CPL" (without quotation marks) in the Start Search box and press Enter.
2. On Recording tab, right-click on the blank area
3. Check “Show Disabled Devices” and “Show Disconnected Devices” and the Stereo Mix should show up.