That sounds like an issue with the phone. The physical button should be controlling the volume. In fact, it's the only control that I'm aware of. I was listening to Pandora on the way to work this morning and used the physical buttons for volume.
Your physical buttons work in other instances of controlling volume?
Are you using any app for stopping music? I had similar issue on my Lumia 920 when I was using such an app. If I pressed the external volume button it showed volume level increasing or decreasing but no physical effect could be seen. Only solution was a soft reset.