If (as OP seems to suggest) it's not actually distortion but merely a subtle difference, you're probably hearing a difference in attenuation.
When volume is disabled, MC does not attenuate the music at all. When internal volume is enabled, even at 100%, MC attenuates by 1dB to account for inter-sample overages. Check the audio path during playback and you'll see what I mean.
If I had to place a bet, the "degradation" you're hearing may just be that you're listening at two different volumes, and people perceive louder music as sounding better, fuller, etc. 1dB is more than enough difference to introduce that well-known psychoacoustic effect.
If that is the issue, you're much better off with internal volume as without that 1dB of headroom a fair proportion of commercially produced music will clip on peaks.