This is still broken in 12.10. You can fix it by installing xfce4-mixer and then manually selecting the mixers to control with it - and then going into the xfce4 settings editor and typing in the name of the "active card". The mute button still won't work properly, you can mute but not unmute the sound with it. Everything else works though, including on screen notifications. It's really tricky to get it all working, so I opened a bug: https://bugs.launchpad.net/ubuntu/+source/xfce4-mixer/+bug/1085752
In detail, in xfce4-mixer you want it to look something like this:
This should show only the primary volume control of your sound card. You have to choose a sound card at the top and then click "Select Controls..." to add controls.
Then in the xfce4-settings-editor you need to set the "active-card" like this:
Under "sound-cards" you'll see a list of every sound card for which you added mixers. You will probably have multiple cards so it might take some trial and error here to find the right one. You need to copy the name of the correct card from "sound-cards" to "active-card" - this will be the mixer which the volume buttons control.