What kind of Sound Blaster Live! are you using? Is it the 7.1 24bit version? If you take a look at ALSA's device compatibility list here
, you'll see that the Live! cards that rely on the "ca0106" module instead of the "emu10k1" do not support sound capture yet.
Check which module you are using with the 'lsmod' command. If you find "snd-ca0106", you may not be able to record sound or use a mic for Skype for the time being. You can pull out the sound card, and switch to the computer's onboard sound device if you have one.
Hopefully the above is just old news and they've fixed it by now.