if you aren't getting much signal into the software, with a headset mic plugged in - chances are that the computer/dragons is trying to get audio off of the internal microphone (especially if levels look low), and you are only talking into the mic on the headset.
Look for a setting in Dragon that lets you select which microphone to listen to. Usually it will be a drop-down called something like "audio source".

I've never heard of bad audio quality from a microphone audio driver - I'd be surprised if that was the final culprit.

-JcG

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