Windows 7 is basically "Vista improved" and uses (in most cases) the same drivers. Thus you should be OK with Win 7.
As it has never worked suggests a hardware problem rather than a software/driver problem. Unless you have an extended warranty, it's past trying to get it fixed from Dell under warranty.
There is a microphone jack, next to the headphone jack, try an external "computer" microphone and see if that works. That will help to isolate the problem to whether it's the built in microphone or some other problem. Computer mic's are cheap.