I can confirm this. I have pretty much the same configuration:
Ububtu 10.10, 2.6.35-28-generic i686 (on AMD 64)
Audio device: ATI Technologies Inc SBx00 Azalia (Intel HDA)

After login playback from any application is at maximum volume. After changing 
the volume in the sound applet everything seems to be working fine. Also 
happens with fresh install. 
After changing the pulse configuration as suggested (put comment on those 4 
lines in /etc/pulse/daemon.conf) the issue has been solved.

**** List of PLAYBACK Hardware Devices ****
card 0: SB [HDA ATI SB], device 0: ALC883 Analog [ALC883 Analog]
  Subdevices: 1/1
  Subdevice #0: subdevice #0
card 0: SB [HDA ATI SB], device 1: ALC883 Digital [ALC883 Digital]
  Subdevices: 1/1
  Subdevice #0: subdevice #0
card 1: HDMI [HDA ATI HDMI], device 3: ATI HDMI [ATI HDMI]
  Subdevices: 1/1
  Subdevice #0: subdevice #0

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https://bugs.launchpad.net/bugs/661885

Title:
  After booting all sound is loud until the volume slider is slightly
  moved then sound works like normal until rebooting

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