It does not work like that.
Any time you capture the thing that you output, you end up creating an infinite loop. You can't avoid this -- if you point a video recorder at a TV that it's outputting to, you get the exact same effect. It captures what it's outputting, then outputs that onto the screen, captures it, outputs it, etc.
The only way to do what you want is to actually work from the preview itself which is capturing a different screen. Essentially, you have the monitor where everything is happening (including where your mouse is), but you're looking at a separate screen which has the preview output to it. You would be working on a delay, because image processing is not instant, but this would let you see the exact output that OBS is giving for your interactions.
Thank you, I was thinking about working on the second-preview monitor as well. still haven't tested how bad the delay would be but I was thinking if it could be a better solution to work on one monitor only.
If you don't
preview the captured display but
do preview everything else you have set in the scene, I think it should work.
So I ran a test
capturing and previewing a video capture device (webcam) and a plugin that shows your keystrokes (input-overlay) and
previewed it on the whole monitor in fullscreen and without showing the display capture (which if was on, would naturally cause the multiplications), and I got full screen, live, real-time, zero delay preview:
So now just imagine the black part would not exist and would be transparent. which means you'll see your actual display and not a preview of it, but overlaid on TOP of it, you'll see all other sources you have in the scene
as a preview. which as my video above shows, should have zero delay so there should also not be any sync issues between the Display Capture and the other sources when you'll capture it.
And just to be clear I mean that OBS
will have the display captured on the stream/recorded file of course, just that you wont see the display capture previewed, you'll see the actual display source (and also the mouse cursor of course, and not a preview of it).