Windows Media Player 9 can play audio CDs in analog or digital mode.
When in analog mode, the audio sub-system is not available to other applications.
When you attempt to record and play back at the same time in analog mode, using Sndrec32.exe to record, you receive:
Your Audio Hardware cannot record into the current file. To record, create a new document.
NOTE: Other recording applications may display a similar error.
This behavior occurs because Windows 2000 has only one audio path in analog mode. Windows XP and Windows Server 2003 use Splitter.sys, a new handler that splits the audio stream into multiple streams.
The only workaround is to upgrade.