I have a feeling I know what's wrong, especially after that note about alternate sound devices.
... Yep, I've just replicated it. It's most likely a dial-up modem (or similar device) that has an audio line and it taking priority over your sound card.
In Control Panel, open Sounds and Audio devices, then click the Audio tab. In the first section, check that your sound card and not anything else is set as the default device in the dropdown box. OK out of it all and try again.