As a Bboy this has been a perpetual problem. But well, I try not to see it as a problem.

It just what it is. Every time I battle, I feel the nerves coming in. But I crush through it and dish out my best sets the best way I can anyway.

It's a cliche, but don't think, and feel the music. Music is the main ingredient and when you feel that shit, nothing and no one can take that away from you.

"And in that moment, I realized the true curse of anxiety as a musician - you can't hear yourself. Every anxious thought distracts from the ability to disappear into the music and PLAY."

Very true. For example, I can practice, but I can't <i>create</i> when someone is listening. Their presence alone makes it difficult for me to relax. And I'm not, as you say, within myself, but rather on the outside, listening to myself nervously without really partaking in what I am doing. Not sure if that's ever gonna change. That's why privacy is crucial for me to be able to work.

Hell Yea! This must be really common. I even come across it when I'm shooting video for my vlog. 

Anyway, I read a rad book on this topic. 
The Inner Game Of Music. 

One of the tools I remember that helped me a lot, was to visualize myself as one of my music heroes and sing like I am inside their body. 
So, If I jamming some blues, I imagine I'm Louis Armstrong fuckin rocking out in some bar in New Orleans. Get all gritty and bad ass.

Cool post again. Nice work.

Self consciousness is definitely something I struggle with, especially with music. I have that same worry that I might be annoying people when I'm playing guitar and trying to sing, this makes me not want to practice until I'm completely alone. Then the lack of practice causes me to become more self conscious, and on, and on, in a vicious cycle of ineptitude and crippling shyness. 

That might be a little bit of an over exaggeration but that doesn't make it any less true. So far, the only way I can see to get over it is to continue practicing, recording, and listening to myself until I'm comfortable enough in my ability to finally be able to perform in front of people. 

Or maybe meth, I hear meth is good for building confidence, haha.