Chris Milligan wrote:
What should my iTunes settings be so that these files stop being created in my iTunes folders?
What are the recommended iTunes settings that does not make duplicate copies of my songs?
You can turn off the "Copy" option at Preferences, Advanced tab. Then new files will be added to your iTunes library without copying. As tt2 notes this is not necessarily a good long-term answer. However, if you really want the audio files to stay where they are, this is the way.
Nowadays, most people add new files by dragging to the "Automatically Add to iTunes" folder. You will end up with only a single copy, and it will be in your designated iTunes Media folder.