This link will show you everything you need to know:
http://www.cakewalk.com/Tips/August02_LP2CD.asp
Choose Start | Programs | Accessories | Multimedia |
Entertainment | Volume Control | Options | Properties.
Click on Adjust Volume For Recording, and make sure all
boxes below are checked.
Click OK, and locate the Line In and Mic sliders. Make sure
the Select boxes at the bottom are checked (you may only be able to check one
at a time - check the one appropriate for your purposes Line In).
Close the window down and try recording in Cakewalk again.