No one is trying to pull your leg, it is true. Disconnecting the battery will cause all of the driving "habit" information to be deleted from the computers. You will need to drive the car for a while to get all of the information stored. The dealer wants to charge $200, that is about 2 hours for a mechanic to make the car go through all of the checks and set values, or you could drive it for 2 weeks.
There have been procedures for reseting values and how to drive the car to make sure all of the values are set. Try looking at http://www.matthewsvolvosite.com/index.php
to find a thread. The search function here for AWD might have them also.

Klaus
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1975 164 w/174,800mi (Sold) 1995 850T w/91,000mi, 1998 V70R w/129,000mi

The problem is that in disconnecting the battery you have cleared the monitors or readiness codes. To restore these codes the vehicle must be driven through two complete drive cycles. $200.00 versus the actual time it takes to get the monitors back up on your car is a bargain. Volvo warranty pays something in the area of 3-3.5 hours labor to do this. It can be a major pain in the ass to get them back up in the course of a day or two and that is why it has been recommend to you that you drive the car around for a couple of weeks. Some of the early cars actually cleared the codes everytime you cycled the key and getting the monitors up on those cars darn near takes an act of God. Can you check monitor status with your code reader? If not most smog stations are pretty decent about checking monitors real quick to see if they are up so they can perform the inspection. This being the case I suggest that you do drive it for a few weeks and then stop in to wherever it is that you will be smogging it and asking them if they'd mind checking your monitors to see if they are up and if so could they please smog it.

Mark