One solution to your songbook issue might be to create custom header/footer overlays and make copies of the printouts using the overlays to cover whatever you don't like. It might be a minor PITA, but probably the easiest fix.
As far as in-game audio settings: I actually leave the effects on, about a 5 on the scale. It's nice to hear the game noises, and at a low enough level, it's not distracting in my experience. Though, I can totally see your point about muting them.
About the mics I suggested... Sure, you could use the USB mic, but I HATE the way it sounds at a high volume level. There's a very noticeable delay (due to signal processing) that can throw players off. I strongly recommend you have the vocal track muted (or very close) for optimal impact. It's kind of a given based on my background; my performers are used to having to sing without a guide track. Anyway, it's really hard to consistently optimize the sensitivity and volume controls in-game to achieve a good sound, and when the singer activates OD, the "effect" that the game inserts sounds atrocious through a PA.
So, what I do is take a wireless microphone, split the output, connect one end to my mixer, and the other end to an adapter that plugs into the console. From there, I turn the mic sensitivity in-game to about a 3 (your mileage may vary), and vocal and mic volumes to 0. The nice thing is, the game picks up my mic perfectly, and I have all the control in the world over mic gain, level, and a large array of effect options. Granted, you could get away with a single modded mic, but it's cumbersome to keep transferring the mic from host to performer and back. Plus, once alcohol is involved, you don't want some yahoo having sole ability to talk through your PA. I really recommend a dedicated MC mic, preferably wireless so that you aren't tied to your sound gear during the show. It's all about presentation, after all.