Apple Headphones with built-in external mic not working

Hello,

I'm using Apple Headphones with built-in external mic, the ones that come with an iphone. The mic is working when I try recording in other applications like quicktime, so I'm 100% sure that this mic is working and has been working with adobe connect until I upgraded to Mountain Lion. In the audio setup wizard, when I reach the recording test and press record, it asks for mic permissions and I allow it, but recording does not start.

If I unplug the headphones and use my macbook's internal mic, it works fine, but this usually offers low quality and loops audio from the speakers. I have been using this setup for over a year, but after I upgraded to mountain lion, it's no longer working!

Correction: the internal mic is not working either!

Is anyone experiencing a similar issue?

Thanks