For some reason, whenever I create a new material, it does this:
I am using Unity Free. Help?
If you are creating a new material within Unity, that’s what it’s supposed to do. You then pick the shader you need (diffuse is shown in your screen shot) and set the shader values accordingly.
Try clicking on the material icon next to the name.
Without Unity in front of me, there’s not much else I can tell you to do as I have never encountered this problem. The Unity manual will probably have more information.