i have found the "solution" to the problem.

This error got reported to me, as if the problem happens, when the app is run. This is not the case. The error is displayed when you try to install the app from app store. The reason for this is, that you set it to "iPhone and iPod Touch (2nd Generation)" in the AppStore. 2nd Generation iPod Touch has a microphone and therefore, if you put it in the store with that setting, it is assumed that the app makes use of the microphone.

The solution is to change this setting in AppStore

I got an iPod touch yesterday and tested out the voice memo function and it worked great. Today I tried to record something else but got the "no mic" error. After a moment of panic (thinking my unit was defective) I realized I d switched to use another headset that didn t have the built-in mic the factory earbuds apparently have. So.... the problem is not likely related to the app, but simply not using the ear or headphones with a mic attached. :-)

I really wanted to use this feature, so I bought earbuds with a microphone at Target. When I inserted them into the jack, the error message remained. I went to the Apple store, and the guy pointed out that the end you insert into the jack is in three segments. When you push the stick in comfortably, it s still not all the way in, though it seems to be. You have to push it in hard, past the comfort level. That worked for me. I thought the factory earphones should have come with a mic, or Apple should have offered me an upgrade me for a small fee. I got the iTouch free with a Macbook, but now it has cost me $30 to use my favorite app.

It will work if you plug in ear phones :)