I am using team speak and flying with my virtual squadron.  I have my headset set and monitor speakers set for environment sound.  My headset gets flooded with engine sounds and I can't hear my flight lead.  How can I go about fixing this.  Would it be best to use external speakers like I have a set of logitech speakers I could plug in?

Go into your FSX sound settings and turn down the "engine" sound slider.

Open up FSX, TeamSpeak, anything else you use.

 

Click on the little speaker at the lower right corner of the screen.

 

Click on the word 'Mixer' below the single slider.  This will bring up an individual slider for each application - you can crank up the volume on TeamSpeak, lower it on FSX, etc.

 

You can also adjust the volume on individuals in TeamSpeak.  Go to TeamSpeak, right click on the name whose volume you want to change - this brings up a menu that should have a 'Change Volume' selection in the first three or four options from the top.  Very useful if you have one player who is too quiet or too loud but all other volumes are fine.

So I have the engines turned down to 1% in FSX settings, I can hear through teamspeak but when I try and talk through the radios inside FSX is when it is flooded.

Try this - and if you think about it this is more realistic:

 

Put all sounds except radio / TeamSpeak through your speakers - in reality all of the environment sounds would not be piped through your headset (consequently due to my ingrained RW experience I keep one ear cushion pushed off my right ear so I can hear the engine and other sounds the aircraft makes).  Put your radio / TeamSpeak only through your headset (if it is possible for you to do these things - should be able to in the Sounds - Settings window where the sliders are).

I will give that a shot tonight and see how it works.  Thanks.