Reporting back, Isent my 7th Gen back to Apple, they did their tests, and sent the same unit back to me saying that it met specifications.
Here are a couple possible workarounds:
1. Hardware. Someone, either in this thread or another similar one, suggested that we get an in-line volume control unit, which pugs into the iPod and then your headphones plug into that. This seems to be the most attractive option for me. Or, get a pair of headphones with a built involume control, which will be able to take the volume down to zero.
2. Software volume manipulation by track, album, or library. * long shot at best * The application iVolume, available here:
http://www.mani.de/ivolume/index.html may be able to help. I'll post back after a few tests, which I won't have time to do immediately. I don't have high hopes for the software solution, as most likely whatever volume the track is set to play at, the iPod itself outputs sound of a set volume level, and not below, as we know and lament. The iPod software is presumably independent of the track information. But worth a shot in case.