Sorry you did not get an answer before now. It is almost certainly a driver problem, probably with your sound device. Audacity itself does not have the kernel privileges to cause a system blue screen or reboot.
Simply updating the drivers of the sound device you are using will usually fix problems like this. Update the device so that it has the latest drivers specific to Windows XP and your particular computer model, as supplied by the device or motherboard manufacturer. See:
http://wiki.audacityteam.org/index.php? ... ce_Drivers
If that does not resolve the issue you may want to search your computer for Appcompat.txt and see if that identifies the exact file that caused the problem. If not, the memory dump will do so.
You can analyse the memory dump fairly easily by downloading
WhoCrashed. Before using WhoCrashed, you’ll have to make sure that Microsoft Debugging Tools for Windows has been installed. The first time you click the Analyze button to look at the dump, WhoCrashed will ask you to select the path to the Microsoft Debugging Tools for Windows (usually in C:Program FilesDebugging Tools for Windows). If you don't have the tools then you can download the required installer by clicking “Download the required file from Microsoft site now”.
If you are not sure where the memory dump is, right-click over My Computer which should bring you to "System Properties". Click the "Advanced" tab, and then click "Settings" under "Startup and Recovery".
Also you want to be sure that the output you are connecting to really is intended to be plugged into a computer mic port and not into a line-in port.
Gale