It is possible that the required audio devices are disabled in Windows.
If you are using Windows Vista, please try these steps to activate the necessary device to enable recording from speakers:
1. Right-click on the speaker icon in the tray
2. Select "Recording Devices" from the menu
3. A window opens. Switch to the "Recording" tab. Right-click in an empty area and select "Show disabled devices".
Different manufacturers use different terminology for the proper recording device. It may be called "Wave Out" or "What You Hear".
Now that this device is enabled, you should be able to record from speakers.
Note that you may have to download and install the latest driver from the maker of your sound card or sound chip before this works, and it currently does not work for all sound hardware.
If you are using Windows XP, please open the Windows Control Panel. If necessary, switch the Classic View. Now open the Sounds and Audio Devices application.
In the Sounds and Audio Devices window, click the Advanced button under Device Volume.
Open the Options menu, and choose Properties.
In the Properties window that opens, select Recording. (You may have to change Mixer Device first.) Make sure that the Wave Out Mix line in the list of volume controls is checked. Click OK. The Recording Control window opens.
In this window, make sure that the Wave out Mix volume is higher than zero, and check the Select checkbox under it.
Close the Recording Control window, click OK on the Sounds and Audio Devices Properties window, and close the Control panel.
You should now be able to select Wave Out Mix as your audio device.
If Wave Out Mix doesn't appear in the list of devices, you may need to upgrade your audio drivers.