I haven't found a need to cut any wires. Yes, the output audio is low, about 1/4 what you have on non ac3 audio, however, by leaving this connected to my TV all the time, I have found that I don't need to change volumn unless I switch over to OTA.
My problem with cutting the wire off the headphone is that no longer allows you to USE the headphones, and I personally find them beautiful to listen too, even on non AC3 programs. Plus, if I remember correctly, there are a LOT of wires in there, more than are needed, causing a ton of work tracing and soldering (IF I remember this correctly).
Use a mini RCA cable connector, you'll be MUCH happier in the long run, and there are TWO connections on the front for headphones. Keep one for using the headphones, and the other for use with the mini and RCA cabling to the TV. Adjust the volume control on the unit to max and you'll be fine. Plus, the headphones can still be used if quiet time is needed while one person watched TV.
I've been using mine this way for about a year now.
Photto's $.02
EDIT: Question was asked about the battery life ... as I recall, I haven't used it in quite a while, so I took it out, but only lasted a few hours, and drops out, dead quickly. Pulled battery so I wouldn't overcook it, "just in case".