How to record sound from Windows?

Before i upgraded my computer, i used to be able to record sound from windows itself, by this i meant like if i was playing a DVD in Windows Media Player i could open Audacity and record it without the need for a cable

Since i upgraded i can't record from windows, whenever i try and get my Line-in Audio Cable to loop from the Audio Out port (Green) to the Line-In port (blue) i get this awful echo noise as if i was playing the noise in some sort of large theater

These are the main differences between the 2 computers

Old: 32-bit Processor, Windows XP OS, AV Rack installed
Current PC: 64-bit Processor, Windows 7 64-bit OS, AV Rack Not Installed

i would just install AV Rack and see if that worked as one of it's main functions was being able to record music playing in it (good if you wanted a direct conversion of a MIDI file) however i just can't find it on google

i mainly want to record the sound from Windows for 2 reasons
1) My dad wants some music recorded of some DVDs for his MP3 Player… The DVD are old films and even so i doubt i can buy some of the music (1 song is this German Army Song called "Panzershrek" or something like that) or even download it
2) there's a bunch of music from Visual Novels i want to stick onto my iPod (really it's an iPhone with no sim card), since it's possible to record music from there there's no problems with me downloading the OST's however the problem is that Fate/Stay Night has an anime with it with some tracks (Excalibur and EMIYA) being redone versions of the same song in the visual novel, Galaxy Angel however has a 5 Season Anime called Galaxy Angel and while i could download the OST for Moonlit Lovers and Eternal Lovers, the first game is just called Galaxy Angel in which case if i search for the OST to download i might end up finding nothing but the anime instead since that's been dubbed and the game only had a fan translation patch done

So i'm wondering how i can go about recording sound from windows itself.

You don't need that audio cable - I'm surprised it actually worked! In Audacity, as your recording source, choose System Mixer. It might be called something else.
Play your CD/DVD/video/music in Windows Media Player & record the sound in Audacity.

PS You don't need AV Rack. Just install the drivers for the on-board audio from the motherboard support DVD.