If we are an extension of that source, then how can we choose rightly?
You seem to be arguing that since Brahman is impersonal, all things that stem from it are also impersonal. As a matter of fact, most philosophical schools of Hinduism regard the self as an illusion; for example, in Samkhya, a school that was very prominent once but has died out, individual selfs arise when the primordial consciousness, purusha, wrongly identifies itself with matter, prakrti. Prakrti is a term that encompasses all tangle things, as well as the senses and the notion of existing; in other words, prakrti is sentience without a consciousness, and purusha is consciousness without a sentience. Purusha identifies itself with prakrti for some reason, and when the consciousness represented by the latter is added to the sentience of the former, the result is an illusion of individuality. So even though all humans percieve themselves as different, due to the 'taint' of prakrti, they are the same, as their consciousness is purusha.

Another way to argue how the notion of independence can arise when all is one is that parts of the original super-consciousness sort of 'mutate' awareness and declare themselves individuals. There are many differing schools, and as I said, Hinduism is way too complex to sum up in a single sentence like that.
But we have pleasure sensations in our body and accomplish great things through passion and desire, so to cut these off is to deaden oneself.
The line of thought is that desire leads to disappointment. It is not the desire, or the pleasure, as such that is the problem; it's the fact that all kinds of happiness are transient and have an end. Nothing is eternal if we are to believe Buddha.