Is it possible to receive aircraft sounds through desktop speakers and ATC through a headset (with mike) thus isolating the two sounds?

Set the SIM sound output to the desktop speakers.

Set your headset as the default Windows audio input device.  It is best to also set it to the default output device.

If you can't set the headset to the default Windows audio output device, set the P2A output sound device to the headset.

Dave 

Thanks Dave. Will give it a go.