Make sure the "Disable Acoustic Echo Cancellation (could help with recognition)" option on the "Recognition" tab of the VoiceAttack options window is enabled (checked).
Then, you can either set the "Windows Speech Recording Device" option on the "Recognition" tab of the VoiceAttack options window to your microphone, if you don't want the speech recognition engine to use the Windows default multimedia recording device
Or, you can set it to the entry prefixed with "Default - ", and make sure the Windows default multimedia recording device is set to your microphone.
The latter can be done a number of ways, including holding down the Ctrl key on your keyboard, clicking the wrench icon on VoiceAttack's main window (while no other VoiceAttack windows are open), after releasing the Ctrl key clicking your microphone in the list on the "Recording" tab of the "Sound" applet, clicking "Set Default", and finally clicking "OK".