What is happening!?
 

I've been having this issue with my car since my CEL came on for a faulty speed sensor. The issue is with my gauge cluster. When I am driving and turn on my headlights, my speedometer drops down to 0mph and stays there. I can be driving for another 20 mins and nothing will change. Another thing, when i first start my car up, the spooedometer needle fluxuates up and down till i start to take off. Has anyone ran into a similar situation? Any feedback would be greatly appreciated.

Replace the sensor, the wheel speed sensor controls a lot, including the speedo. Pick up a decent reader that can do more than engine codes, I use Launch X431, these will allow you to find which sensor is failing so you don't have to replace all of them.

I have done that at my buddy's shop, front passenger is faulty, ordered a new sensor. But I don't think a sensor would cause my speedo to act the way it is acting.

If its the only thing that's clearly wrong with it then you wouldn't know until its replaced and the possibility that it could be causing issues is removed. If its still acting up after the replace, then go from there, otherwise you won't know for sure.