First off, you can use a program such as GoldWave to make a decent recording from MusicTime or any program for that matter if your soundcard supports a function typically described as "loopback". Obtain GoldWave from http://www.goldwave.com
, it's not free but has a trial. Once downloaded and installed, create a new wave file large enough to hold your recording using CD quality settings (44.1 Khz 16-bit), and then on any Windows version besides Vista, double-click the volume control which will show you the mixer for your soundcard. Go to the "Options" menu and choose "Properties", select "Recording" and ensure all the checkboxes are selected, these are the various input devices your soundcard can record from. Hopefully, a loopback function will be present after you have selected ok, if it is you'll need to select it, and take out the checkboxes from other input devices if your soundcard allows you to select more than one.
Put the volume for the loopback device about at the second notch, but experiment a little. Goldwave is fairly self-explanatory, it has LED style levels which shouldn't be peaking in the red. You'll next need to view the default "Playback" mixer volume control again, simplest way is to just double-click the volume icon in the system-tray once more. Go to "Options" and "Properties" and like the recording mixer scenario make sure that you have every device listed by selecting all the checkboxes, then ok this, afterwards you should have a large mixer, mute any device not used, like line-in or especially microphone, this is just to be safe and possibly get a cleaner sound. Also, experiment a little whilst recording, but typically the mixers of the devices your recording from should be at max or very near so.
Now, simply start GoldWave recording, check the help if you don't know how, and then press play in MusicTime. It should work very successfully. If your recording from a software synth, I recommend that you add a blank page before the music in MusicTime just to be safe and avoid a temporary skip who tempo problem.
Finally, GoldWave defaults to saving wave files which are the best to record a CD with using your favourite burner software. Apologies that I have not dealt with the volume mixer in Vista, but this guide works on every other version of Windows. Hope it helps.