Newest Audacity and Win7 dont work together

I am using Win 7 ultimate and the newest download of Audacity and have tried several setups. I am still unable to capture / record anything I am playing on my VLC player. I get nothing but flat lines. I have tried capturing Video sound and MP3 playback. Nothing.
My system is as follows:
Computer PC/Desktop Custom Build
OS Windows 7 Ultimate x64
CPU AMD Athlon II X3 435 Rana Triple-Core 2.9GHz Socket AM3 95W
Mobo GIGABYTE GA-MA785GM-US2H Rev 1.1 F9 Socket AM3 AMD
Memory G.SKILL 8GB (4 x 2GB) 240-Pin DDR2 SDRAM DDR2 1066 PC2 8500
Graphics Card Integrated in the North Bridge: AMD 785G
Sound Card Integrated into MoBo RealTek
Monitor(s) Displays RCA 46" big screen
Screen Resolution 1080P Variable.

I downloaded and installed the newest Audio Drivers for the Gigabyte board with the onboard Audio built in by RealTek but it made no difference.
Has anyone had this issue with the AMD Gigabyte board / Windows 7? Is there a set up that will work?

Recording music playing on the computer isn’t particularly easy because you have to trick the computer into run Play and Record at the same time and they don’t always want to do that.