Perhaps the squelch control has deteriorated due to time, temps, humidity, oxidation, etc... Perhaps a sharp impact to the AF/SQ knob has damaged a circuit trace. If you have a CAT interface cable it would be interesting to know if the squelch will open controlling it remotely via ICOM's RS-BA1 or Ham Radio Deluxe. If it opens remotely then a mechanical failure is the likely culprit. You could try resetting the CPU by holding BOTH band buttons and powering up the rig. This will reset the radio to factory default settings including clearing memories.
Good luck solving your problem,