Use the following settings on the PicoStream receiver Audio Output:

Open the Sound dialog on the MacBook Pro (System preferences > Sound > Input).
Normally the MacBook’s Internal microphone is selected.

Connect the provided cable to the Audio Output on the PicoStream receiver, then connect the cable to your MacBook audio input.
Do not do the other way around.

Normally, the MacBook should detect the PicoStream as an external microphone and show External microphone instead of Internal microphone.