Installed raspbian on 8gb miroSD card booted with 5v and 0.7A power supply, rpi boots well and works. when i pluged in an headphone, the cursor freezed. I restarted and everything worked well and when i was about to shutdown by typing in shutdown command. The lxde desktop was misbehaving new terminal windows were opening when i didn't even click anything, new windows, dialog boxes were opening. Is this because of lxde desktop bugs or low power supply ?
From what I have seen and heard in multiple places, this is most probably a problem with your supply. Many times as you were saying the description of the adapter is not the same as what it actually outputs because of faulty hardware. I do not know which model you have but many of the models need at least around 700ma so there is not much room for error there. I would highly suggest getting a solid high amp adapter for the Pi which you will want in any case for other power hungry projects.