From all the discussions I have had (or read) with Volvo techs, tranny techs and on the brickboard, I have made up my mind regarding the sequence to follow when you see transmission problems. It seems like the most logical sequence towards fixing potential transmission problems is as follows:

Number one: Don't panic!!! Don't give $2500-3000 US / $3500-4500 AUD to Volvo or a tranny shop just yet! A lot of tranny shops will tell you that the transmission is completely shot when it may not necessarily be the case. It may be the case, but it may be due to bad fluid or PNP switch.
 

Stage One - Information Gathering:

 
• Check your transmission fluid and levels. If it smells burnt or is not a clean red colour then this may be indicative that it needs replacing. Wipe the dipstick on a white tissue/rag/paper to see the colour clearly. (My ATF looked a light brown this way, but when I flushed it out, it looked like a dark, opaque brown in the translucent white container.
• Check your transmission fluid levels. Levels are checked when the car's engine is running and either/both when hot & cold (different levels on ATF dipstick for hot & cold).
• Have a look under the battery area and see if the gear position selector switch has got crap all over it from the battery. This could indicate a PNP fault, as could loose connections that may be discernible with a "jiggle test". See reference to this in Dave's brickboard posting to me found here.

• "ratchet clean" the gear position selector switch. To do this, move it rapidly between L and P about 15-20 times (with the engine off) to clean the contacts in the PNP. The switch is full of grease & three heavy duty contacts. It accumulates a lot of crap over time. Many report that it is most liable to become faulty in cold weather.

• Completely flush ATF

• Change gear position selector switch. (Do it yourself instructions here)

• Get more than one expert opinion, just in case you might be throwing away heaps of bucks needlessly. You should seek the advice of at least one each of tranny shops, dealer, and independent Volvo specialist if you can find them. Then with the information found on this site and elsewhere, make an informed decision on your individual circumstance.

• last resort: transmission overhaul/replacement. Ouch!

 
• Advanced: check out volvo TSBs on auto transmission repair. You can go to alldata and join to read all of the volvo 850 / 70 TSBs. Checkout the demo product first, it has plenty of info. on transmission work. Here's a sampler of what you might see in one of the more simple TSBs.
• Get someone to do it for you. When it has to, Volvo Australia typically just puts in new trannys rather than reconditioned ones (- so someone that works there told me, anyway; sounds wise to me). Take consolation in the fact that the car is worth it (just think of the hospital bills & (economically unquantifiable) pain that you/your family/friends might save with it, or the (also economically unquantifiable) great drive)...

Obviously this approach varies from the cheapest to the most expensive, in that order.

Of course, if you want to try the most expensive solution first for peace of mind, and it is your right to do it that way if you so wish.

Amazingly to me, some people that have passed by the Brickboard forum seem to have taken that attitude!

Me, I would prefer to spend four grand on another nice holiday to Phuket than pay the tranny shop proprietor to do the same!

Needless to say, I'll be flushing my ATF every year, or whenever it comes off the dipstick more brown than red, or if it smells like less than clean ATF...

                  That's my opinion, anyway.