Hmmm. Sounds like something got hosed during driver install and it won't get over it.
You're correct that blue is normally sound input, but the Asus mobo's are interchangeable, meaning that software determines which port is used for what. So you could be able to set them for whatever device you'd like to plug in, like using the pink one for output, or using the blue for mic.
How your's is behaving is just not right. And the problems getting beyond me bud.
What I'd try is a format reinstall of the OS. Not a perfect answer, I know.
I always make sure that Service Pack 2 and direct X are in first, then install drivers from the CD, then plug-in devices like printers and scanners last. Make sure speakers and MIC are plugged in before you install any of the mobo drivers/soundmax.
Sorry I couldn't do much more...Maybe Asus' forum would have more help.