I have the same problem regardless of sound card (I've tried both the embedded audio and a Hercules Game Theater XP card). Neither line-in nor Microphone work for recording, and my user account is a member of the audio group. I have tried as root as well and get the same results.
This breaks VOIP applications and it breaks MythTV recording.
(nevermind, I found a combination of settings in alsamixer that fixed it)