Rosetta Stone/Internal Mic not working

I have recently installed Rosetta Stone Version 3 (language software) on my Macbook Pro. I am having issues using the internal microphone with the software.

When I setup the microphone within the software and then do the test (say 1,2,3,4,5 into the microphone as a test), the program tells me everything is working fine. However, during the lessons, when speech recognition is necessary, the microphone doesn't work.

Firstly, the speaker will say a work, then when it's my turn, it's as if the microphone is not being recognized and is quickly turning on and off as if it's trying to hear something. Secondly, every time the microphone is enabled and disabled, it turns up the microphone input volume (System Preferences > Sound > Input > sliding bar with low to high) one tick until it's at the top of the bar; thus rendering the microphone useless due to an overload of ambient noise.

Any suggestions or tips? I know Mac users must have this working. However, all the info I can find is a bunch of frustrated Mac people and a lot of finger pointing between Apple and Rosetta Stone.

HELP!