That is, unfortunately, something that can't be fixed since the headphone jack is electrically directly connected to whatever input level you connect. The amp is connected to the same source, and only outputs to the speakers. On the plus side, it's not a firmware bug :D ( Although this should probably be documented somewhere )
I'd recommend setting a comfortable level for headphones, and then adjusting the speaker amplification accordingly. If you absolutely need headphone volume control ( I wouldn't be surprised if the volume in emulators was all over the place ) you could use something like: http://www.amazon.co.uk/Pro-Signal-Headphone-Volume-Controller/dp/B0131PQIJM
I don't know if there's any way to bind a hotkey in Raspbian to allow the Picade to adjust the system volume control on the fly. Could be worth investigating.
It sounds like something's gone awry with headphone volume ducking, though. It's an interesting challenge, since the Amp doesn't have any kind of bi-directional volume protocol- the Picade never actually knows what volume is set, and restores the volume setting by turning it right down to zero and then stepping it back up again to the desired setting.