Audio signal feedback when using microphone

I have an Asus M2A-VM AMD 690G Socket AM2 Motherboard running XP Pro.

When my mic is plugged into the standard mic jack, the audio out signal is being fed into the mic jack so the recipient on the other end can hear every sound my computer makes (the mic is working as they can hear my voice too). It’s happening with Skype and Vent. It happens when no speakers are plugged in, so it’s not audio feedback or an improper jack hookup.

I’ve looked over all my settings and I can’t figure it out.

Could this be faulty hardware?