I go into the instrument options (the wrench) too, but I instead remove the check from the box labeled:
 
"Accept Standard Controllers for Volume and Pan"
 
It's right above what you changed in your approach.
 
By removing the check on the above option, it severs the connection between the fader volume and the Master volume, and it will also serve to stop that stupid fader jump that prompted this thread.
 
I do the same thing for any of the loaded instruments I have for a Kontakt instance, and for any other Native Instruments synth, like Battery 3 or FM8 or Guitar Rig.
 
I do not want the movement of a track fader in Sonar to be tied to the setting of the Master Volume for whatever instrument/synth I am using - so that is why I do the above.  However it works by default is goofy, and I am quite happy to sever that behavior.
 
I cannot speak to which approach to dealing with the issue would be better - perhaps someone else can take a look at that and post back with their take on it.
 
Bob Bone
 

Bob -
 
Another great tip! Both of these are going into my Kontakt tips notebook.
Thanks.

Good suggestions Bob! I have to admit that I have taken to creating a separate output for each instrument and adjusting their levels in the Output pane. That way I avoided moving the Sonar faders. Since I bounce everything before mixing, this works well enough, but now I'm going to try your suggestion.
 
Regards,
Dan

One more tip, not sure if it will help you:  in any Kontakt instrument, you can go to the "Scripts" tab and load in a "Factory" script called Midi Monitor.   Then you'll see what is being sent to Kontakt by sonar.     A surprising thing to me was that Sonar voluntarily sends a CC64 message every time playback stops.    Like so much else, it would be way better if sonar kept its little hands to itself.   But the midi monitor will let you see what is being sent.
 
 
Also be very careful of the "Gain" setting in sonar for a midi track, another surprising contribution  ...
 

Good to know WilliamCooper.
 
I've seen that a few times and didn't think much of it (until you mentioned it).
MIDI Monitor it is.

One more tip going in my notebook! Thanks William!

Removing the check stopped the slide from jumping to the low position, thanks.  I still wish I knew what was going on.
 
Related: One of the Native Instrument instruments I bought does not work correctly.  NI examined my logs and said I need to reinstall Kontakt and all Kontakt instruments.  I sure hate to do that.

Sorry about your problem, Konrad.
 
But otherwise, thanks for these very helpful tips!

Couple of links, may/may not be helpful...
http://forum.cakewalk.com/tm.aspx?m=3279578
 
As a matter of tradition I always post the ultimate Kontakt thread as well:
http://forum.cakewalk.com/Sonar-X3-and-Kontakt-5-per-Bob39s-request-m3030422.aspx
 
Cheers..

I am very happy to have the volume issue fixed (even if the cause is unclear).  I will update the NI stuff once I am sure I have all the IDs and registrations handy--and a day to kill.