Cubase is simply telling you that with the hardware of your system, and the driver installed - it thinks there are two audio inputs - which there usually are on almost every computer - probably one of those 3.5mm jacks, often on the front, but usually on the back. These are connected to around £5 worth of electronics and are brilliant for plugging in a headset, and talking to people. For music, however, most suck! The computer's audio output is usually a bit better, but often with very quiet buzzes and the moving sound of data running around the computer. Designed for headset mics, the audio ins are normally horrible - high levels of hiss and noise and no use for anything low in level like mics and guitars. Just about OK for plugging in an iPod or something.
Cubase expects to see a proper audio interface that can do the job properly. Your problem is nothing to do with Cubase. if you bought the latest one, the screen is almost identical.
If you buy a modest priced audio interface, you get proper mic connectors on XLR, usually phantom power for better mics and depending on what you buy, more ins and outs. 2 in and 2 out, however is perfectly workable for most people to start with.
The question for me is to do with the dongle - few modern computers have parallel connectors now, so the fact it's running suggests it's a cracked copy, and while many of these sort of worked, they were usually cracked by people who weren't musicians, so Cubase had a habit of crashing when you tried to do very simple musical things - like look at a score or list edit - it would check for the dongle, not find one and fall over. Cubase 5 is really old in computer terms, so I'm surprised you got it working properly. Cubase has moved on vastly - VSTi is so embedded now that effects, plugins and gizmos are everywhere. Cubase 5 can record and replay and do a few things, but it's like buying an old VHS camcorder on ebay - it takes pictures, and if you're Steven Speilberg, you can make good movies on anything. If you're not in that class, Cubase 5 won't help you, but just make you frustrated. I'd buy one of the latest cut down modern versions.