The line in port should be better than the microphone port, the microphone port will give you a very quiet version. Ideally you need a preamp for this sort of recording or a top quality sound card, just been looking at this stuff myself :)

http://www.etcetera.co.uk/Support/howto/howtoConnectGuitar.shtml

This describes it a bit better, your solution should work, although if you have just bought a stock computer and not built it yourself, odds are it'll have a pretty bad soundcard and lose a lot of quality.