It depends on what operating system you're working with; I'm running Windows 2000, but these steps should work for any flavor of Windows from 95 to XP. I have no idea how to modify these settings on OS X or any of the *nix variants out there.

1. Open up the Volume Control from the taskbar (just double click the little speaker icon next to the clock).
2. Go to Options -> Properties
3. Select Adjust Volume for Recording
4. In the list of volume controls, make sure that all of the inputs you want to use are enabled.
5. Click OK. The volume control now lists your various inputs.
6. Just check the little box below "Line In", adjust your levels, and you should be good to go.

Notes:
Most consumer-level audio hardware I've encountered will only let you have one input active at a time; that means you can't use both the microphone and line in simultaneously for recording purposes.

However, almost all of the Sound Blaster variants (Live!, Audigy, Extigy?) have an option to select "What U Hear" as an input, which effectively lets you monitor every active output as the input; so if you had both "Line In" and "Microphone" set as active outputs in your Volume Control Playback options, then you could set your input to "What U Hear" in order to capture both of them.

And now that I've written that long-winded description of how to use a Sound Blaster with Windows, you're probably going to tell me that you're on a Mac or something, aren't you?