Some google searches suggest this is a bug in xbmc when xbmc get confused when using one of the remote apps to control it; other users suggest you can reset this by using the remote app, but I can never get this to work.
The only solution I have found is to modify xbmc guisettings.xml file:
So if you are using raspbmc you will find this in the /home/pi/.xbmc/userdata folder, but other implementations of xbmc will have a similar structure.
The file is an xml file and the /audio/mute element that needs to be changed is:
Save the file (CTRL X)
Reboot and hey pesto the poxy thing has gone!