You've tried the audio settings in AVID - BUT have you tried the suggestion that many others have made about changing the audio settings within Windows XP? This was crucial for me to do. It was only after changing the settings in XP's "Sounds and Audio Device Properties" that I got it to work.

Go back through this thread, and look for screen-caps people have posted of the Windows XP audio settings. Or, as a simpler alternative, I did a thread on this not long ago here: http://community.avid.com/forums/t/57718.aspx

You can ignore most of the thread, just be sure to read my last entry there.

Hey sverkalo,

Thanks for the help on the "Failed to Initialize Audio Hardware" problem.  I switched the audio input to "Digital HD input" on my Realtek ALC888 audio hardware in the Sound control panel in Windows and voila!  No more troubles.  Definitely recommend this solution.

-Isaquit0-