The previous owner did exactly what Volvo wants us all to do, buy a new Volvo instead of driving them for 400K Km. That oil should not be burned, ever. And he should have been using synthetic 10W30.
I also would pass.

Klaus
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I still miss my 164 and my 854T. Just driving a V70R :)

I would personally probably look for another car. The sludge may not be innocent. I don't know if it is true in the car you're considering but sometimes when you remove the filler cap you can see one or 2 of the camshaft lobes. I've looked at some used cars where there was sludge and these had a burnt, worn or discolored appearance on the cam lobes which says to me the engine wasn't receiving effective lubrication. Engines without the sludge and otherwise nice should have at most a few light scratches on a cam lobe at the mileage you're considering - hardening should not be worn noticeably. You can run the starter to reorient the lobe so you can see the most protruding part. You could also see how hot the oil seems to get after a good highway run with the car. Unless you are pushing the engine to an extreme, very hot or acrid smelling oil would also point to some excessive friction developing.

Some domestic car brands (read: Chrysler) have had chronic sludging problems with their engines - and some (read: GM) have revised their recommended oil change intervals to shorter - whether due to owner neglect, short trip driving cycles or engine designs with marginal oil flow, it all adds up to engines that didn't last.

Also if it is a turbo, is that really the suggested interval? Earlier turbos had a 5K mile (8KM) interval.