If all the software is set up correctly, it could be the mic.
When I first tried this in the demo, my mic vol was set up too loud. Since I don't use a mic often, I didn't know what volume setting I sould have used.
There is a feature under mic in MS Volume Control which has the [Advance] button (or at least on my computer is does). If you were to press this a window pops up and at the bottom it has an option for a +20dB boost. If this is checked, then try unselect it and then try the game. Or try selecting it if you think your mic is not loud enough.
Ok.. I'm not an expert on mics, but this is what fixed my problem... and I have a 95% command responce from my bots. Once you get this working, you'll really like this feature.