I thought the volume slider was strictly for the headphone out jack.
You're right, when he was talking about surround sound I'd assumed (never a wise decision!) he was using the headphone jack instead of the mono outputted by the back of the unit with composite cables. Even on units without "High Definition Graphics" printed on them, the sound is quite good except for V7, the unit without the EXT port or the blank spot for it.
I highly recommend reviewing that Sega16 thread, it's very very neat. And even a Model 2 can sound quite nice (in my opinion) if you use the CCAM mod.