I wouldn't call them blown out...but they certainly have 'flat' lighting...and it may be a bit too bright.
I don't know what camera/flash you have...but you can usually turn the flash exposure down. Check your manual. That won't solve the flat light problem though. That is a result of the flash being close to the lens. The light hits the subject at the same angle as the lens (or pretty close) so there is not depth to the subject. This is why 'off camera lighting' looks so much better.
As for the 'dark halo'...that's a shadow. The flash, this is a problem of the flash being away from the lens (kind of the opposite to your other problem). The angle that the light hits the subject, causes a shadow to be cast behind them. If there is a wall or something right behind them, then the shadow shows up. The key to fixing this, is to either move the subject away from the wall and/or put the flash in a position where the shadow won't show up in the image. For example, a flash bracket is often used to keep the flash above the camera, even when the camera is turned to portrait orrientation. The flash is high above the lens, so the shadow is case directly behind and below the subject, where the lens can't see it. Or, if the flash/light was well off to the side, the shadow would fall to the other side. Either of these things would also solve your red-eye problem.