I probably wouldn't worry about the 5 lbs - at the beginning of a diet, your body will often shed alot of extra water, so your weight readings will be over the 2 lb/week that you're aiming for. If you continue losing at that rate by the 3rd week, though, I'd bump up the calories. Of course, you already would have gone over your goal by then, so I guess you'd actually have a few pounds to gain

. So I wouldn't start worrying yet.
For the hunger mechanism, it'll mostly depend on you. I know that I have to force myself to eat more, or I wouldn't be able to maintain my present weight, so it's definately possible that your body won't be 100% accurate in telling you when you should eat. That said, though, 1400 cal a day sounds low, but I'm a guy and eat 4000+ cal, so most numbers'll sound low.
Rough estimate: if you average 2lbs loss/week (except as above), you shouldn't lose muscle. At that rate, the body will prefer to burn fat. Of course, if you work really hard on cardio, your body may burn through its glycogen stores and burn muscle tissue for energy until you stop the exercise, but that takes at least 20 or so minutes of maximal effort, and is only a concern for the period of time you're exercising - it'll go back to burning fat when you aren't demanding immediate energy.
Hope this helps - it looks like you're doing some good work so far!