The menu bar always follows a very strict hierarchy.
the Apple menu contains everything that pertains to the entire user/login/computer: System preferences, Dock preferences, shut down, restart, software update, sleep, log out, etc.
The Application menu contains everything that pertains to the entire application you're using: Version info, application preferences, hide, quit.
The File menu contains everything pertaining to an individual document or window: new document/window, print, save, document-specific settings.
The Edit menu contains everything relating to the *currently selected objects* within the frontmost document: copy, paste, select all, etc.
Wherever applicable, you'll have a "View" menu that changes how documents or windows are displayed.
The rightmost menu is always the "Help" menu, which will take you to the Help Viewer application, where you can search individual help files for keywords or switch to different help files ("Library" menu) to browse.
So if you're looking for a setting that pertains to the way the entire GarageBand application deals with audio, you'll find it under the "GarageBand" menu --> Preferences.
Make sense?
The great advantage to this rigorously implemented structure is that, even if you've never used a program before, you can more or less find your way around in a matter of minutes, without ever having touched a manual.
You might still have to select the "line in" in the system preferences, but I believe GarageBand 3 now allows you to select mic or line in directly within the application - the way it should be.