Just to clarify - Nitrites are NO2 and Nitrates are NO3. Based on that, I would say that your tank has cycled but the dip (strip) style tests aren't usually accurate. You should try to get the drop style test kits like an API Master Freshwater kit for example. A local pet shop should test your water for free but make sure they have the drop style tests.
I would really like to know what your ammonia level and temp are as Tina requested. Also, are you using any water treatments in your water? City water can have chlorine/chloramines in it and well water runs a danger of carrying metals. Both are toxic to axolotls.
How big is your tank? How much water are you changing? In a cycled tank, weekly 20% water changes should be enough. What is his diet? Do you "houseclean" daily? Depending on the food you use, the chemistry of your tank could be thrown off. Excess food = ammonia...
As far as morphing, this is a very rare occurrence in axolotls...so I wouldn't worry about that. I would worry about proper filtration. Axolotls do prefer slow moving water, but they must have proper filtration too. What kind of filter are you using?
Sorry for all the questions, but we are trying to help. The more information we have, the better advice we can give.
