Secondly, the second track records very silently and when I try to amplify it it goes silent. 
Please tell us your version of Audacity (all three numbers, see the pink panel at the top of the page).
Please tell us exactly what you are recording, with what equipment (makes and model numbers are good).
For the first problem in your title, wear headphones and choose the correct recording device in Device Toolbar (do not choose stereo mix). If you are using a mixer, do not send the Audacity playback back to Audacity because that will cause it to be re-recorded.
The second problem may be solvable by choosing the correct recording device (see above) and possibly by using the current Audacity 2.1.2 from http://audacityteam.org/download/windows. 2.1.2 will force your Audacity temporary directory to a location where security and cleanup applications won’t try to delete the files.
Gale
I have version 2.1.1
Track 1 is a MP3 karaoke version of a song
Track 2 is me playing the melody on electrical guitar via an external sound card USB 3D sound model HY554 to my Lenovo B50-70 Model 80EU.
It did work before
This http://www.amazon.co.uk/HY554-Audio-Controller-Support-Virtual/dp/B00KCWRFGI?
If it did work before without distortion, select the correct recording device in Audacity’s Device Toolbar - so in this case USB Audio CODEC for the HY554.
If you do not see HY554 listed in Device Toolbar, try Transport > Rescan Audio Devices from the menus at the top of Audacity.
Gale