"From Windows Vista onwards, you can use the Volume Mixer application (double-click on the volume icon in the system tray) to control the sound level of individual applications.
Here's a sample screenshot of it:
You can also run the program by typing sndvol from the Run prompt.
You can do this by clicking on the sound icon in the system tray and selecting Mixer. This will bring up a dialog that will let you indiviually set volume for each open application.