...can't be found by the OS.
So you can't listen to CDs and YouTube without Audacity? Generally, if Windows plays music, Audacity can be made to play, too. Maybe not record. Recording music play on your computer is an extra series of steps you need to perform.
http://wiki.audacityteam.org/wiki/Recor ... e_computer
All that and you probably need to upgrade to the latest Audacity. Your version is seriously old.
Audacity 1.2 is very old and no longer supported,
patched, corrected, or updated. Audacity 1.2 can
be unstable on newer computers.
Download and install the latest Audacity 1.3 from here...
http://audacityteam.org/download/
You can install both audacity 1.2 and Audacity 1.3 on
the same computer, but only use one at a time.
Audacity 1.2 will not open projects made on Audacity 1.3.
If you use MP3 or some of the more modern audio
compression formats, get Lame and FFMpeg software
from the same web site. Do not use older software
or software from other web sites, even though they
may have the same names.