Eric, my observations about the LS-10 are essentially identical to yours. However, notwithstanding what appear to be low playback and recording levels, I have found the audio quality of recordings to be generally excellent. I have used the low microphone sensitivity setting (with the manual recording level set pretty high, as I recall) to successfully record guitar and vocal songs with the unit placed maybe 18 inches from the performer. I assume the low sensitivity setting would be good for loud concert performances, but I haven't yet had the chance to try that.
As far as playback goes, while it is true that I have to turn the volume to maximum to listen to the onboard speakers, earphones generally sound good at a playback volume of about 5. Also, when the earphone output is input to a stereo system (at maximum volume, which I believe is appropriate given that there is not a separate line out jack on the LS-10), the sound level is good at approximately the same stereo amplifier volume setting (perhaps a bit higher) that I use of playing CDs, etc.
I too wonder if my experience is normal for this product, and it would be helpful to hear from those who have raved about the product if that is their experience also, or if on the contrary they have enjoyed higher recording levels or higher playback levels or both.