I could not get audio to work after moving to 10.6.3 no matter how hard I tried. So i did something drastic:
Got a USB stereo adapter. You may pick any of the ones available; I picked the one that works without drivers for OSX. The one I chose was the Syba SD-CM-UAUD USB Stereo Audio Adapter based on the C-Media Chipset.

http://www.amazon.com/Syba-SD-CM-UAU.../dp/B001MSS6CS.

Why? It is 9.99 at Amazon.

Step 1. Remove all audio related kexts from /Extra/Extensions. In my case they were AppleHDA.kext and LegacyALC883.kext.

Step 2: REMOVE /Extra/Extensions/SleepEnabler.kext. This is to avoid a kernel panic when you install 10.6.4

Step 3: Rebuild /Extra/Extensions.mkext. Use mkexttool.app or the following command line:
sudo kextcache -v 1 -a i386 -a x86_64 -m /Extra/Extensions.mkext /Extra/Extensions

You can optimize based on if you are running 32 bit mode or 6 bit mode by using only the -a i386 or -a x86_64 respectively.

Step 3: Download Updates 10.6.4 Pretty big. Reboot.

Step 4: Attach the USB sound device and plug in speaker and microphone inputs. Make sure that everything is pushed in completely.

Step 5: Go to System Preferences -> Sound. You should see C-Media USB Audio.

Make sure the volume for microphone is set properly. Mine was set to minimum.

There seems to be a new SleepEnabler out but some people have had issues with it. So I am waiting for the jury.