There are two places you should check:
1. Sound Pane in System Preferences.
In there look under Input and make sure the mic is selected. You might also need to turn up input volume, perhaps it is just set too low.
2. Skype Preferences.
Check the Audio section and make sure the mic is selected.
If that doesn't work, I am very confused and would only be able to guess it is some incompatibility with 10.3.