I am going to start two websites very soon. My web host offers two domains so does this mean I can have two websites with one plan? Also should I chose Linux hosting or Microsoft hosting? I will use PHP and Java in both of my websites. And I am choosing 1&1 if it makes a difference.

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It sounds like your plan allows 2 websites, and you may as well go with Linux.

just careful, java needs a container like Tomcat or Jetty...PHP works in apache out of the box..pretty much...you want to go Linux... and you could use tomcat over Apache...you have to play with some configuration, though.

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When signing up for hosting you can register a free domain. After creating your account through your created account you can register other domains only for $10.