Sorry to disappoint you but I've got no answer, just exactly the same problem. If you solve it yourself, could you post the solution? Unless there's someone out there who's got any ideas? I've heard that there's nothing that can't be solved in Linux through the community!
I've also tried every permutation of sound manager etc. etc. and audacity prefs and every time all I get is flat lines & no recording. I'm very used to Audacity as I've used it for years in Windows (and in ubuntu Hardy Heron).
For me Audacity is crucial as I record lots of streaming stuff. And I notice there's no recording alternatives in Linux (other than voice recording etc).
I've only just got Linux mint - having created a dual boot a few days ago, and am absolutely blown away by it - I just love it (normally on Windows, currently 7) and have managed to get 2 important Windows-only apps working beautifully with WINE, so the only problem is with Audacity.........but it's a big problem.
HELP! I don't want to have to go back to Windows now I've tried Mint!
Thanks for reading this.