Audacity Forum

You can sometimes get more information on where the problem is if you cause a little intentional damage and then see what happens. You need one piece of hardware...

http://www.sweetwater.com/store/detail/CMR203

Plug that into the Line-In of the Mac -- tiny circle with two black arrows. Plug it in firmly twice and then give it a quarter turn.

Apple > System Preferences > Hardware > Sound > Input > Line-In

Advance the fader all the way up.

Hold the rubber or plastic part of the cable in one hand and with a bare finger from the other hand, touch either of the two metal tips on either RCA connector. The blue sound meter in the Preferences panel should jump. Now touch the other RCA tip. More jumping. This proves that the two connections into the Mac, left and right are both healthy and we can move on.

I keep meaning to photograph this because one picture is worth 1024 words.

Koz

To reiterate Koz's post with a picture:

It is worth checking that the computer input is working correctly.
To do this you will need a lead like this:
This must be a "known to work and no doubt about that" lead.

Plug that into the Line-In of the Mac and ensure that it is securely in place.

Apple > System Preferences > Hardware > Sound > Input > Line-In

Drag the fader all the way up.

Hold the plastic part of the cable in one hand and with a bare finger from the other hand, touch either of the two metal tips on either RCA/phono connector. The blue sound meter in the Preferences panel should jump. Now touch the other RCA/phono tip. Again the sound meter should respond in a similar manner. This proves that the two connections into the Mac, left and right are healthy.