I can see in your profile that you are using Windows XP, so that's what I'm writing the instructions for. If you have Vista, it's going to be significantly different.
Go to Start > Control Panel > Sounds and Audio Devices, then click the Audio tab. You'll see three categories - sound playback, sound recording, and MIDI music playback. Select the Volume button underneath the Sound Recording category (the middle one), and adjust appropriately. For me, I have three mics listed, Line In, Microphone, and Digital Mic. Microphone is the one you want turned all the way down.
Clicking the Select checkbox underneath Line In or Digital Mic should also disable the internal microphone.