Another application may be taking control of your audio, I've noticed whenever I load up Skype and start a voice call it dims the sound of everything else on my computer, and sometimes doesn't reflect that change in my audio options.
Yup, especially seeing as direct chat seems to be controlled via the effects slider which is rather silly as everything else in this game is so damn loud.
Make sure you have your microphone set as your default communication device firslty;
Control panel > Hardware and sound > Sound (Manage Audio Devices) > Recording.
Right click on your microphone and select "set as default communication device"
Then, right click and select properties > Advanced > Make sure both "Exclusive mode" check boxes are checked.
@meow @Commander Maratek @Agent Washington
edit: Secondly, make sure your microphone is the default in Steam.