That action actually changes the default audio input for speech recognition globally for the entire system, but it won't affect other instances if they are already listening on an input. So you would need to make sure that you set the correct input for each instance immediately before turning VC on. You can also set it when VC is already on, but just remember that if you turn your audio input off, you will need to set the correct input before turning it back on, because the other instance of VC might have changed the default input. Sounds complicated but it really isn't. Switching between On and Standby does not matter because the microphone input remains active when in standby.
It is quite unfortunate but Microsoft decided that noone would ever want to use anything other than the default audio input, just like they think noone would ever want to use anything other than the default audio output with Media Center.