Why is it my microphone is recording my speakers as well?

[soul_writer_of_dreams]

I have never had this problem before, I recently did a system restore and thus this started happening. I only have one option for my audio/speakers and my microphone, and so I'm not sure what to do. When I record something in sound recording or speak in Vent all the background noise from my computer is carried over (such as music, games, movies, etc) despite the fact I am wearing headphones. What do I have to set in the Windows XP settings to fix this?