when you are monitoring the recording via audacity are both channels being recorded, is there activity on both the left and right channel indicators in Audacity. ?
To check this click on the little down arrow next to the small mic icon, this should give you a small drop down menu, select Start monitoring and you should see two horizontal reddish bars showing you the recording input levels.
To get the lame encoder go here
http://lame1.buanzo.com.ar/
you want the one under the red banner thats says
For FFMpeg/LAME on Windows:
Lame_v3.99.3_for_Windows.exe
can you let us know what .dll file it says is missing ?