Hi, Shelby:
As to the first point, that's the way MIDI works: Out to In and In to Out.
While I'm not sure, the second problem may be related to Microsoft's (nearly) useless GS Wavetable synth. While fine for those who have no other sound device on their system, it can interfere with other devices the user installs.
The fact that you have to fiddle with your audio settings, which Composer doesn't deal with, in and of itself, makes me suspect the GS Wavetable synth.
Make sure that it is disabled in your Midi Device Configuration for Composer. If you need internal sounds, I suggest a 3rd Party synth, like Cool Soft or Synthfont.
Hope that helps.
David