I've not played with GB, so I'm not sure if it does any of the following that I'm about to describe. But I do know that AHP allows you to customize effects with the recording. I can apply audio unit and VST plug-ins as part of my recording. I can set AHP to send the recordings I make to specific folders for specific programs (e.g., send any recording I make from Safari to a "Safari recordings" folder that I create). I can be recording one program while listening to another. There are a host of features in AHP that are quite nuanced.

^ Quite right. Audio Hijack does considerably more than just capture all system audio output, which is the only thing you could do with a cable (and even then it would be inconvenient, especially if you have to unplug a set of headphones or speakers first, not to mention the fact that you're degrading the quality of the signal by passing it through a DAC, an analog cable, and then resampling it with an ADC).

More to the point, what you usually want to do is capture audio from a specific application, so you don't accidentally record alert sounds and other unwanted noises.

Really, your $3 solution gives you exactly what you paid for: a cheap, inelegant and inconvenient solution, with none of the other features that make Audio Hijack great. It's like saying "why buy a car when you can get a pair of rollerblades for much cheaper?"

Does the honourable MacUpdate member acknowledge a difference between digital and analog?
Is the honourable member aware that recording the analog output of the headphone jack via the mic/line-in jack involves a totally unnecessary and deleterious double D/A and A/D conversion?
Is the honourable member aware that most Macs can output and record an unadulterated digital signal via TOSlink optical connexion?
Does the honourable member realise that, if a physical loop were necessary — and it is not — a digital loop would be infinitely preferable?
Does the honourable member realise that the advice he proffers is unsound?

"Latest reports"... link(s)?

Sorry to not cite sources. Mine was the Macfixit main page for today (Mar 19 2007), but articles on the Macfixit home page become accessible only by paid subscription after a few days (a day or two?), so I didn't want to have people trying to look up that citation several days from now, and being told they couldn't access it.