Apple has released an update for their recent iPods that enables you to limit the maximum volume output, including the ability to lock it with a combination code.

Will this stop the problem?

In a few cases, maybe, but as I've argued before, this isn't going to make any difference to those people who want to play their iPod at maximum volume, and unfortunately that is the same group of people who will never install this update, and never set the maximum volume even if they did.