There are several different variations you can use.
1) Tell something to the first student in the target language, then ask the student to record what you said using Audacity or a standard tape recorder. Send a new student out and ask the 1st student to tell the new student what they understood. The new student will record it (without listening to what the first student recorded), and so forth until all the students have "heard" and "recorded" the story. Then, let the class listen!
Low-tech Alternative: Have students stand in two lines. Whisper the information to the student at the head of each line, then see which team can get the information passed to the end of the line most quickly and accurately.
2) Divide students into pairs. Give each pair of students a different page from a children's story. Ask the students to think how they could use sound effects to make the text of the story more comprehensible. Have pairs take turns recording their part of the story until the whole story has been read aloud into the computer or tape recorder. Play the story for the students, showing them the pictures as they listen. Students will listen more attentively to the entire story because LOVE to hear their peers voices and enjoy the unexpected sound effect surprises.
Low-tech Alternative: Have students act out their page in front of the class.
3) Divide students into groups and have each one generate a "rumor" that they wish were true. Have them record it for the class.
Low-tech Alternative: Have students take turns sharing their rumors aloud with the class. You might wish to use an "Inside/Outside Circles" format for this: Inside Outside Circles.doc
4) Have students produce Tabloid-type magazines in the target language with classroom-appropriate, fake "rumors" that they wish were true.
Audacity – Phenomenal, free software you can download and use just like a tape-recorder. Great for projects that require interviewing or sound files. Students can also use it to edit, layer, or remove background noise from their own audio tracks. Even better, they can save the files as MP3 files and export them to their iPods!