thanks for the help...you pointed me somewhat in the right direction.
It seems that the audigy installs to some odd configurations. Heres what I did to fix it (It was on "What you hear" for the input)
controlpanel -> sounds and audio devices
click on the audio tab.
Under "Sound Recording" theres a volume button, click on it
now you'll see "Recording control", check to box "Select" under microphone.
viola

. Sound is perfect.
Thanks for the sound recorder idea, thats what made me know it wasn't setup correctly.