Allright, I'm stumped. If anyone else wants to try to figure this out, I'm attaching a modified version of Kim Salo's audio overlay patch which should apply cleanly against a Hijack v300 kernel tree. Hopefully someone can find the source of the volume spike.

I sent the patch to Mark so maybe he can hopefully (a) integrate it into hijack and (b) spot the reason the volume is spiking after the pcmplay output is done. Not sure if he's back to Empeg hacking just yet, though, so maybe we'll have to fight this one ourselves.