I needed to research this again, and it took a couple of tries to find the best answer for me.
My mission – record the music from a youtube video that I can’t just dump into Youtubetomp3converter.org. Old school method, recording software and the “what you hear” driver. My environment, Windows 7 and Adobe Soundbooth.
This link lead me down the right path; however, there was one detail I over looked and want to point it out.
http://www.sevenforums.com/tutorials/20595-what-u-hear-recording-enable.html
In step 3 the Stereo Mix is only grayed out, but for me is was hidden. I right-clicked in the white area below the devices showing and selected the option to display hidden devices. Right-clicked on the Stereo Mix and enabled it.
In Soundbooth when I went to record I would get an echo which was kind of cool and kind of not. Went back down to the sound icon in the task bar and next to the clock. You may have to click on the up arrow. From there right-click on Volume Mixer and uncheck in my case Soundbooth. You may have different recording software installed so just uncheck it and see if it helps.
I hope this helps someone.