Recording audio with Ubuntu lucid lynx

Install the 'paman' (PulseAudio manager) package via Synaptic. Let it resolve all dependencies and hit Apply.

Now you'll find a 'PulseAudio volume control' application in your Sound & Video menu. Run it.

From here on it's very easy to start recording all audio that gets played. Just start a recording application like Audacity and head to the 'Recording' tab of the Volume Control application. If everything is ok you'll see the recording application is detected (if it is recording). If not, use the selector on the bottom right and select 'Applications'.
Next select 'Monitor of internal audio analog stereo' for the recording application. It should now start record your audio.