Examples are like what I described above such as walking, Stairmaster and the like. It need to be something you enjoy especially if your goal is to loose weight. The reason for this is that consistency is one of the biggest keys to loosing weight. If you choose an activity that you don't like, chances are you won't stick with it. The answer is yes.
Muscle does weigh more than fat.
However, you will usually notice a difference in the way your clothes fit and will loose inches. That is a good sign of progress in the right direction. Basically, you want to look at three factors - intensity, duration, frequency. The intensity needs to be high enough to get your heart rate up, but not too high that you cannot sustain the activity for 30 or more minutes. Also, the frequency needs to be regular at a minimum of three times per week.