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your headset should have 2 plugs, 1 for hearing and one for speaking.
EDIT: Ow, usb headset... I have no idea but I guess you have to fix it in the Headsets' application (which I hope you have)
Also it would help if you would give us the brand of the headset and your soundcard (onboard or seperate soundcard)

input mic in headphones

Control Panel -> [Hardware & Sound] -> Sound
Select recording tab
Right click on the madcatz microphone -> set as default

it should work after that

The computer might still be trying to use the old one, so you need to change that to what you're currently using. You can do that from the control panel > hardware and sound > sound > recording devices, or just click the audio icon on your taskbar (if you have it there) and just click that and it'll take you straight to it.

And no, you do not need sound card, on-board sound card will do the job.

Buy a headset signed with "UC Voice", no mini jacks, only USB.
When you plug them all apps that use voice will be set automatically to use this headset.

There's a cheap one, but good enough - Jabra UC Voice 150 Duo