I too had the same problem which took me days to sort out.  Eventually I disbeleived everything and belled out the cables and checked the codes of the driver.  Firstly I found that the cable markers (to join to the USB dongle) were wrongly labelled/wired, and secondly that the Magix drivers conflict with the XP SP1.  My kit contained a phono to SCART lead, a usb dongle with a micro usb connector that connects to a cable adaptor with a white Y divider, and a CD. By re-wiring the leads (swaping phono plugs to the y connector) and then installing all the Microsoft updates to get to SP2, everthing worked. 
The instructions in the box were far from adequate to deal with what to do if it does not work. The included video on how to set up was half cut -and failed to even suggest starting the video player and making sure it has an output.