I have this exact same issue. I tried the drivers that shipped on the disc, the latest drivers on the motherboard page, the latest drivers from Realtek. Nothing works. I tried the microphone on another computer just in case - works absolutely fine. And that one even has realtek drivers too!
All the advice I can find says "so buy a sound card" or "so put the boost all the way up" - but I didn't pay
this much for a motherboard only to need to replace one of its components or to deal with horribly distorted sound.
To make matters worse, it looks like this has been a known problem for about two months:
http://rog.asus.com/forum/showthread.php?41149-Mic-issues-Still-no-fix/page2I'm really regretting this purchase. I've had great luck with ASUS boards in the past, but if as fundamental an issue as getting the mic to work can't be solved (and doesn't even get any real response after two months!), I think they may have lost a customer.