Wow! I'm so happy. It is working again. Speechless gave me the concern about SP1 so I did a search on SP! in all threads and came up with a thread titled "Why Won't it Work??!!", which was a familiar refrain here. Anyway, here is the answer that put my system back into operation.
It's importent that Vista and Audacity agrees on sample rate and bit depth. SP1 for Vista installation chances thise settings on the recording driver - just another Microsoft feature
Go to the control panel, sound, recording tab and click properties on your recording device (eg. USB Audio CODEC). Click the Advanced tab and ensure the Default Format maches the setting in Audacity (Edit/Preferences/Quality/Default Sample Rate).
I checked and sure enough, my recording device preferences had been changed to 1 channel instead of 2. I made the change back and I am happily recording again.
I will post this on the other thread too for others to check out.