This morning, I was using my Late 2008 MacBook when I found that audio wasn't working. The volume icon in the menu bar was grayed out and System Preferences said that my output was set to Digital Audio instead of Internal Speakers like it normally is (and Digital Audio is my only option).
More surprisingly, the headphone jack has a glowing red light (I had no idea it could do that!).
Why is this happening? Can I do anything to fix it?
Best Answer
Old question but since I had 5 minutes ago the same problem, I'll post my solution:
The audio output is as Graham Min describes a double output, working for headphone jack or Toslink adaptor. In my case the problem appeared as I disconnected my headphones: OSX didn't switch to integrated output but stayed on digital (optical) output
This page describes an elegant non invasive solution and in my case the solution was as simple as connecting the headphones again, and diconnecting them gently.
Here the steps
Plug your headphones back in.
Play a bit of sound through them (e.g., a song), then stop the sound.
Make sure Preferences is quit.
Launch Preferences and open the Sound pane.
While the Sound pane is open and set to Headphones, pull out the headphone plug from the jack.
It will reset itself to "Internal Speakers" and you are good to go.