Yeah, mine stopped working too and I had to fix it. There was an issue with Soundflower and Snow Leopard. Get the latest version here:
The other thing was that I made a mistake in the settings.
My current settings are:
Soundflower is set to "Built-in Output" in the top menu settings.
In the Audio settings:
Built in output for out data. It has the happy Mac icon
Sound Flower (2ch) has the speaker and microphone icon.
= Works. But don't forget to launch M8 after changing the settings (or are they working instantly now? Can't remember). Crank up sound input volume in M8 and start animating something.