no audio after plugging x-mini speaker

After plugging in an x-mini speaker ( http://www.amazon.co.uk/Generation-Capsule-iPhone-Laptop-Speaker/dp/B0059ERNGG/r ef=sr_1_5?s=electronics&ie=UTF8&qid=1395491665&sr=1-5 ) i have lost both built-in and headphone output audio on my MacBook Air.

I plugged in both the 3.5mm audio cable into the headphone socket and the usb charging cable to the USB port, while playing internet radio through VLC - no sound came out.

I unplugged the speaker from both the 3.5mm and USB, whole system hung for few seconds, came back to life - still no audio.

I tried adjusting the volume with the keyboard F keys but the OSD showed a "disabled" logo where the volume level would normally be.

I restarted the machine, no difference.

I shut down the machine, waited 30 secs, turned on again. Heard startup sound loud n clear, still no audio. Under preferences, no audio devices listed.

I tried a "fix" suggested on a forum some where, that is

1. Shut down your Mac.
2. Locate the following keys on the keyboard: Command (⌘), Option, P, and R. You will need to hold these keys down simultaneously in step 4.
3. Turn on the computer.
4. Press and hold the Command-Option-P-R keys before the gray screen appears.
5. Hold the keys down until the computer restarts and you hear the startup sound for the second time.
6. Release the keys.

Now the volume buttons display the volume going up and down as expected, but still no audio from built-in speakers! (except for startup sound so obviously not a hardware issue).

Also, now i have headphone output listed in System Preferences, but if i plug in headphones i get no audio, except for a loud clicking sound that increases in tempo until i can't stand it anymore and unplug the headphones.

Does anyone have any idea what on earth has happened, and what i can do to resolve this issue? I have not recenlty installed any software or altered any system settings.

Model: MacBook Air 13" / Oct 2012 / 512gb / 8gb / core i7 1.7ghz / OSX 10.8.4

Any help would be very much appreciated, thanks!