I have a 04 LS430 and I would think your microphone is fine since it is asking you to rephrase. If your microphone isn't working, it would say something like "Voice Command Cancelled..."
This voice command, at least for me, doesn't work too well. When ask NAV to go "home", it would reply, "FM radio", when I say "FM Radio", it would reply "AM Radio..." and I thought it was my accent but doesn't work with other voices (friends, family, neighbors, etc).
Its not the Nav disk either, I've updated with most recent version but no difference was noted.
Would love to hear what others have experienced!