Are you sure the microphone is not broken? Can you check it on another system to be sure the hardware is fine?
As far as settings I will be specific. Is the input bar in the volume adjustment (In your system tray) for the microphone turned up more than halfway?
If so have you installed the latest windows drivers for your onboard sound chip? You should be able to go to the motherboard manufacture's website and download the latest drivers.
Unless you have a USB mic, which I don't think you have, that would be it as far as software settings problems.
Other than that I am baffled as well.