Comment 26 for bug 312403

Short answer: I believe I followed these instructions:
http://webupd8.blogspot.com/2009/08/how-to-upgrade-to-alsa-1020-on-ubuntu.html

But as Björn pointed out above, I commented out the lines which I had used previously to specify the model type ("options snd-hda-intel model=basic" et al.) and then I downloaded the source code to alsa 1.0.20 (driver, lib, utils) from here:
ftp://ftp.alsa-project.org/pub/driver/
Then I unpacked them to /usr/src/alsa/

I made sure I had all of the required dependencies by running these commands:
sudo apt-get -y install build-essential ncurses-dev gettext xmlto
sudo apt-get -y install linux-headers-`uname -r`

Then I went into each of the three directories (starting with the driver) and ran:
sudo ./configure
sudo make
sudo make install

Then reboot!
As a precaution, I always make sure I don't do anything else with the computer while I'm building and installing drivers and I don't try to monkey around with injecting the drivers without rebooting.
It all compiled and installed without incident and now the headphones mute properly when I plug them in AND the microphone (as well as all the other sound devices ) are recognized by skype properly.
I did have to go into the volume control in gnome, change the input source to "internal mic" and fiddle with the mixer a little to boost the input but, all in all, it went as smooth as can be.

The downside to this solution which I was alluding to in my previous post is that every time the kernel gets updated by Ubuntu these drivers will have to be rebuilt and reinstalled. This isn't too big a deal though since rebuilding them and reinstalling them is just the 'make' and 'make install' commands from above run again for each of the three components.

And that, my friends, is the extent of my knowledge. Heh. I'm sure there are people on here who can tell you a lot more about this topic than I.
Good luck and remember to report back successes and failures! Only through communication does the community get stronger.