Make sure that it is enabled. Right click on the speaker icon in the system
tray and choose Sound Preferences. Click on the Input Tab and then on the
Down arrow and choose Microphone. Make sure that is not muted and the slider
is not slid to off.

If it still does not work you might have to remove PulseAudio (see:
https://help.ubuntu.com/community/Skype and the Troubleshooting section).

I did all that and tried different microphone settings - nothing worked.
I then followed your link and would like to spend some time on it as it
also covers my next step - of a webcam.
I intend to try this sometime in the next few days.

I have got Skype with the webcam working under Windoze.

I have spent a few hours this weekend on trying to get the microphone
and my webcam working with no result. The webcam was recognised but
there was no clear picture and I got no way further with the microphone.
However a friend does have a webcam with builtin mic that says is linux
compatible - nowhere in the documentation can we find any mention of
linux.

Thanks for the links to the new grub articles - they are now in my black
book