QUICK SOLUTION:
Here's a solution that worked for me (I also emailed it to Fluenz team). Once I did a clean install (or reinstall from DVD), it didn't work ---- in other words I had the same problem!.... but, when I went to
www.fluenz.com/updates and went on to simply update my software (picking appropriate options for my level ... currently Fleunz French 2) and downloaded a quick update then it worked for me. That is, the "type what you hear" underfined error was gone!... so try that.
.... Perhaps I should have also wrote that I'm not referfing to the Lion Update, but a particular level update that is chosen from the menu and then click the yellow 'download button'.... once downloaded the update takes a second (make sure you have the particular Fluenz Level installed via Lion update though, as you are downloading and installing the above mentioned general update!..... Also, once you do a new Lion update (from Apple) to the Mac OS X 10.7.1, you will have to redo this general update step, as (for me at least) the section with "type the phrases you hear" stoped working again, by giving me "undefined" error. Hope this helps! ...