I think that is normal. Once you plug an external device, the iPhone software probably believes your volume will be controlled externally. I'm surprised you didn't get the prompt that the iPhone would switch to Airplane mode.
this is a "feature" that was added in the 3.0 software. Generally, when playing through external speakers, you have the iPhone volume on full, and control your volume with the device your listening on. That's essentially what happens when the volume slider goes away