I did some research, and came to the conclusion that you can't assign the control knobs to any of the native parameters in GB(it doesn't allow MIDI Mapping). Your only option if your daughter really wants to control EQ and other things with the Oxygen's contol knobs, is to use third-party plugins with MIDI assignable parameters.
Turning the monitor control all the way should give you only the playback source in the output.
The monitor control is there to set the amount of direct input to playback when you're tracking live musicians.
In your case you just want to hear the playback at 100%, without any noise introduced at the inputs.
Hope this helps!
My initial thought was, does it matter really? Because you can separate the stereo tracks after recording, you hinted to this in Q1. If you run two (unrelated) mono tracks through a stereo stream, then you still have two mono tracks, i.e. Q1; it makes no difference. But you can record mono inputs to mono tracks in Audacity, if this is what you want.
If you ...
The M-audio 24/96 soundcard is not designed to do what you are asking. If you wanted a simple, single-piece solution for handling mic input and headphone output, you could look at a small external mixer with USB interface to the computer.
The Modmic is a cheap electret mic capsule with a 3.5mm plug designed to connect to the (pink) mic input connector on a ...
My M-Audio Mobile Pre-USB is not recognized my Yosemite; I can get it to work by unplugging the usb cable and re-plugging it in but it's gone after the next restart.
Cant find any updated drivers (yet). Strange behavior and inconvenient but it is a work around.