The knob is too large in diameter for the shaft - or, the shaft is too small in diameter for the knob, if you'd rather think of it that way - so the knob twists off the shaft where the shaft meets the knob.
Looks to me to be a problem related to how fast one spins the dial. The one I pulled apart with this issue had the knob twisted off, as opposed to snapped off. The plastic had stress marks from torque. Although, it probably doesn't help things if the camera gets whacked on the knob, either.
I bought one off of Kiu that had this problem. I needed a spare power switch / shutter button assembly to repair yet another unit and so swiped it from Kiu's with the bad main dial.
However, I did analyze the fault out of curiosity. It looks to me like this is a part design problem and likely plagues the entire line of cameras. I don't know if it's something that was ever addressed as production went on or not. Probably not given the small quantities produced. I suspect part of the problem is aging of the plastic, which would mean that the fault didn't show up until it was way too late to address in production.
The dial knob and shaft are part of the rotary switch assembly and not a seperate item, so one would need to replace the whole thing to repair the camera. I doubt the part is available any longer, either. Service parts have about a 10 year lifespan, after which the shelves are purged (meaning they toss 'em in the trash to make room for newer parts).
Since we're chatting about known faults, the other common design fault I know of is the main housing on the corner by the power switch. This area is prone to cracking due to the plastic being too thin on the compound corner. The crack runs to the power switch / shutter button assembly opening and then the upper half of the switch ass'y falls out.
So, don't get rid of the unit with the bad main dial, because you just might need the power switch ass'y out of it to repair another unit at some point!