I have a cheap Labtec microphone with 3.5mm jack (
This or something very similar) and it seems to work fine until Steam is running. I can record with the standard Windows recorder and Audacity picks it up, but if I open Steam then Audacity doesn't detect it any more and if I press record on Sound Recorder it gives me this error:
Your audio hardware cannot record into files like the current file. To record, create a new document.
Obviously this also means that it doesn't work for Steam. Searching for solutions it appears people usually have problems inside a game, but I don't even need to get that far for problems to arise. If I then close Steam, everything goes back to working dandily without me doing anything else. My microphone is plugged into the front because since I first built my computer my speaker and microphone plug-ins in the back haven't played nicely with me.