This is likely not the problem of the camera being inside the shadow volume, but instead the shadow not being drawn becasue the camera is too close or the model is being clipped.

The current Stencil shadow system (z-pass) is really only useful for games where the camera is never going to get too close to a shadow caster, such as a top-down rpg or something...in that case they will work perfectly.

Stencils shadows are by their nature going to be somewhat slow, because of fill rate demands. You can dramatically increase performance by using model LOD--the shadows will be drawn from the lower detail meshes.