A program called Freecorder can record from various inputs (mic,
speakers, inline) to MP3 format.
http://www.freecorder.com/
Very much crippleware, for 19,95 you get:
Buy an upgrade now and you can:
* Record at 128 Kbps CD Quality.
* Eliminate silence from your recordings.
* Record for more than 30 minutes.
* Pause and Resume recordings.
* Automatically name recordings.
* Adds Title Tags to MP3 files.
* See no more ads.
For freeware alternatives:
Stepvoice Recorder:
StepVoice Recorder is real-time recording software with MP3 file format
support. It allows recording from any sound source, such as microphone,
line in or any sounds currently playing on your PC (internet radio, movie
sounds, etc.).
Now shareware, but last freeware version is still available on their
downloadpage:
http://stepvoice.com/download.html
Audacity, the Lame MP3 encoder libary is on the download page.
info:
http://audacity.sourceforge.net/about.php
download
http://audacity.sourceforge.net/windows.php
Absolute MP3 Recorder 1.0
Absolute MP3 Recorder is a software-based solution allowing you to record
the sound of your PC directly to an MP3 file. No hardware, no wires, no
drivers.
http://fileforum.betanews.com/detail/999168684/1