Earbud headphones with built-in mic iPhone 3G

If this has been discussed, forgive me and please point me to the forum for the answer.
I have an iPhone 3G 3.1.2 running fine. About 2 weeks ago, I tried to make a call wearing the ear bud with the built in mic in them.
The person I cal calling could not hear me at all... Hello? Hello? Hello?.... click and hung up.
Later I was listening to my music using the iPod part. I went to squeeze the mic to pause the music... nothing!
So I figure the ear buds are just going bad. No worries. I get a BRAND NEW set from another iPhone box laying around the office. I mean brand new, still tapped up all neat like Apple sends them...
SAME PROBLEM. So, now I know its not the ear phones, but the iPhone
Does anyone have any ideas, thoughts, suggestions?
I tried a hard-reset. That did now work
Any advice on this would be greatly appreciated.
I hate driving with my phone jammed under my ear. I prefer to be hands-free.
Thanks
-Jason
iPhone 3G iPhone OS 3.1.2