I've had this problem since I bought mine a year ago. I gave up on it
and no longer use the microphone on it. The video quality is fine. I
believe it is a driver problem because the audio was fine until right
after I updated the driver the first time. The driver update made the
video quality a lot better but ruined the mic audio. I exchanged the
thing twice (Best Buy) and got the same result with all three units.
Unless it was a bad batch, this is either a design flaw in the hardware
or a driver problem.
Microsoft has been useless in trying to resolve this problem. They've
told me to reposition the camera, move my speakers, use a headset,
etc... Everything but what would prove it's a driver issue. I just gave
up after a while. Haven't bought any other MS hardware since. Too bad...
I was thinking of getting a Zune.
Oh, actually my cam is a VX-3000. So it's not unique to the hardware.
Also, I am running XP and have tried it on both MCE and Pro. Same deal
on different computers.