In home directory create a blank file name it .asoundrc, and paste it as follows
# normal ALC883
# skype wants 24 kHz recording input,
# but ALC883 doesn’t support that.
# do a rate conversion on the fly.
Restart Skype!! Solution worked in Ubuntu 10.10
Source: Distortion of sound in Skype 2.2
After a restart this did work fine on my Ubuntu 11.04 with Skype 184.108.40.206. Glad that this is now resolved as it's been an annoying problem.
UPDATE: With the new Skype 220.127.116.11 I do not need this anymore. It even causes problems if its still there. I just deleted the file and now Skype only has some distortion on start. After its started everything sounds like it should.