I think I mixed up the location of mute, but try this:
Start > Control Panel > Hardware & Sound > Manage Audio Devices
Check out the options on the Recording tab. In my case, I have two options for "Mic", one back-panel and one front-panel. If a Mic is plugged in an detected, you should see it here, and you should have a Configure button at the bottom of the Recording tab that leads to options on the Ease of Access > Speech recognition Options panel (like Set up microphone), etc.
On my Vista PC, I also have Realtek HD Audio manager, and on the Mic Tab, it can be muted or unmuted..
I don't have a mic plugged in, but actually was using the mic port as a line-in port, so I can't comment much about tweaking speech recognition settings ...
Hope this helps, though!