Well, first I'm going to make the assumption that you are talking about using the iSight with iChat. (It works just fine with other apps, too.)
As for which mike is being used -- that's in the iChat preferences Video tab.
iChat does a pretty good job of echo cancellation, but it's not perfect. The very best solution is for one person (or both) to use earphones instead of speakers. That breaks the feedback loop.
If you're using the iSight for other apps (like Skype) that don't have advanced echo/noise cancellation, using earphones on one end is pretty much essential.
tooki