The traditional way to capture audio is to pick a "Stereo Mix" or "What U Hear" recording device and record in a program like Sound Recorder or Audacity. However that relies on your sound card exposing that feature.
In Vista they introduced an API to capture your PC's sound output independent of any sound card support, but it seems few programs have added that feature. Does anyone know of a program that does it that runs on Windows 7? FRAPS does it but records video as well, which I don't want.
High Criteria’s Total Recorder does exactly that, and does support Windows 7™.
Audacity can do this. Here is a blurb on their site about recording exactly what plays through the computer's speakers (and they specifically mention settings for Vista, likely due to the newly introduced API).
It seems it is driver dependent. In my PC, I have a Sound Blaster X-FI Xtreme Audio, which has what-u-hear in Windows XP, but not in Windows 7.
Onboard chips (such as the Realtech HD) have this option with the driver from the realtech site (but not with the built in drivers). You could try to install a virtualized XP and try to play&record within the virtualized environment (through the SB16 wrapper)
