I think a got it at least partially figured out.
(see previous post)

The culprit was /home/user/.mplayer/sdl.volume

it is a text file and it was set to 17. I changed it to 100 and everything mplayer is loud and clear. I was able to turn off the software volume control and audio filter in the mplayer.conf file and it is still nice an loud.

Question: What UI program tends to mess with this value? As far as I'm concerned it should remain at 100% and i can use the master Maemo volume control to turn things down from there as needed.