You installed Ubuntu 8.10, then added Skype, you try out Skype and you notice that the microphone does not work.
What's wrong? If you search the lists, you can find some indications, however no proper explanation of what's the source of the problem. Without having the Skype Linux developers explain, it's difficult to know what is goind on.
Some instructions advise to disable PulseAudio. That is not a proper solution, so we ignore. We aim forward not backwards.
Some other instructions suggest to remove the pulseaudio package, then add it back again. I do not understand how that helps over /etc/init.d/pulseaudio restart.
The workaround that works for me is to keep the settings to pulse and set Sound In to HDA Intel (hw:Intel, 0).
Recording does not go through PulseAudio but it interfaces directly to the sound card.
Remember that before trying to troubleshoot Skype, make sure that recording and playback works with Applications▶Sound&Video▶Sound Recorder.