Comment 4 for bug 772720

VLC 1.1 does software volume internally (according to the volume level in the VLC UI). The base levels have not changed since ages, and are the exact same for either ALSA and PulseAudio output plugins. (This will change in VLC 1.2 that integrates with PulseAudio volume control but Ubuntu is not there yet.)

From your bug description, it sounds like PulseAudio (or a PulseAudio volume control application) is setting the default volume of VLC streams too high - when VLC outputs directly to PulseAudio via libpulse that is.