It depends entirely on the headphones, I have some Etymotic in-ear buds that cancel external noise on about half volume. It's not just how loud you go, but what the headphones do to ambient noise in general.
And still, a lot of people do listen to music overly loud, and will probably damage their ears, so they risk ruined ears and not being fully aware of everything going on around them.
My point is, it's silly to make such a general statement just because a few people will be stupid. Most people have sense enough not to crank up the volume and not use noise canceling headphones while biking, and there's no reason for them to not enjoy music while cycling.
And still, a lot of people do listen to music overly loud, and will probably damage their ears, so they risk ruined ears and not being fully aware of everything going on around them.