I agree. Even with my nice sound isolating earbuds (Shure), it doesn't block out all the external sounds unless I set the volume higher than I would like.
While playing music on headphones can help block out conversations, it is still a distraction. It's just not as annoying as hearing other people talk.
And they've never invented (to my knowledge) smell-canceling headphones.
I've worked in places where it was an issue. And it's a very difficult one to address. "Please be quieter" is much more socially acceptable than "Please use deodorant".
While playing music on headphones can help block out conversations, it is still a distraction. It's just not as annoying as hearing other people talk.