This only happens when your primary audio output device is not headphones or the built-in speakers of your Mac. For example, when you connect an external USB or Firewire sound card, or another virtual sound driver such as those from Adobe utilities (Premiere Pro, Media Encoder, …).
I don't think this is related to Sparrow in any way.
When it happens, hold ⌥ and click your volume icon in the menu bar.
If something other than "Internal speakers" is selected, then your audio controls won't work.
So, check what is listed in your case and remove the offending device/program.
If it's actually showing "Digital out", then that means your optical output is stuck. Your Mac thinks an optical cable is connected, when in fact it is not. This could be a hardware or software issue.
You can try the following software fix:
- Play some music
- Connect a pair of headphones
- Open System Preferences » Sound
- Disconnect the headphones
You could also perform an SMC reset as suggested here – possibly with speakers or headphones plugged in.
Some others suggest this is a hardware problem. With a toothpick, try fiddling around in the headphone port, so that the latch releases again.