Microphone stops working if Pulseaudio is set with "enable_remixing = no" flag.
It shows no signal nor it playback the the sound in "Test Microphone" option.

To reproduce:

Your standard analog microphone. It works with default Pulseaudio settings.
Edit /etc/pulse/daemon.conf and uncomment enable_remixing and set it to "no".
Microphone stops working.

Some applications work fine with either setting (ex: Sound Recorder), others like Skype suffer from the same issue.

Processor Information:
    Vendor:  AuthenticAMD
    Speed: 2800 Mhz
    3 logical processors
    3 physical processors
    HyperThreading:  Unsupported
    FCMOV:  Supported
    SSE2:  Supported
    SSE3:  Supported
    SSSE3:  Supported
    SSE4a:  Supported
    SSE41:  Unsupported
    SSE42:  Unsupported

Network Information:
    Network Speed:  

Operating System Version:
    Ubuntu 12.10 (64 bit)
    Kernel Name:  Linux
    Kernel Version:  3.6.3-030603-generic
    X Server vendor:  The X.Org Foundation
    X Server release:  11204000

Video Card:
    Driver:  ATI Technologies Inc. ATI Radeon HD 4770 

```
Driver Version:  3.3.11653 Compatibility Profile Context
Desktop Color Depth: 24 bits per pixel
Monitor Refresh Rate: 60 Hz
VendorID:  0x1002
DeviceID:  0x94b3
Number of Monitors:  1
Number of Logical Video Cards:  1
Primary Display Resolution:  1920 x 1080
Desktop Resolution: 1920 x 1080
Primary Display Size: 18.74" x 10.55"  (21.50" diag)
                                        47.6cm x 26.8cm  (54.6cm diag)
Primary VRAM Not Detected
```

Sound card:
    Audio device: Realtek ALC889A

Memory:
    RAM:  3950 Mb

Miscellaneous:
    UI Language:  English
    LANG:  en_US.UTF-8
    Microphone:  Not set
    Total Hard Disk Space Available:  18629 Mb
    Largest Free Hard Disk Block:  3510 Mb

Installed software:

Recent Failure Reports:
    Sat Dec 22 21:06:14 2012 GMT: file ''/tmp/dumps/assert_20121222210609_1.dmp'', upload yes: ''CrashID=bp-9167f3e8-b4bf-4864-9280-97f722121222''

Not sure if Steam or Pulseaudio bug, I already reported the issue to Pulseaudio developers on their IRC channel.