I haven't found a need to cut any wires. Yes, the output audio is low, about 1/4 what you have on non ac3 audio, however, by leaving this connected to my TV all the time, I have found that I don't need to change volumn unless I switch over to OTA.
My problem with cutting the wire off the headphone is that no longer allows you to USE the headphones, and I personally find them beautiful to listen too, even on non AC3 programs. Plus, if I remember correctly, there are a LOT of wires in there, more than are needed, causing a ton of work tracing and soldering (IF I remember this correctly).
Photto's $.02