Recording audio from PC

OK, I usually can do everything without any help, but I just can't figure out how to do this. I want to record the sound from a video file being played. I've tried doing this with audacity and wavepad, but the quality that I get from the recording is very bad. Anyone have any tips on this?

Thanks

I think there is a way using Windows Movie Maker, but I'm not sure how it works. There's a 'narrate this clip' feature in which you can select where it records from, ie. microphone, AUX, etc. etc.