The wire you have should be fine. The "thermostat" is actually a simple thermostatic swtich that is mounted up in the foam near the middle of the seat bottom. If you adjust the seat forward and tilted all the way up from the back seat you should be able to see the two wires leading up to the thermostat. On my 850 it was the wiring connection to this switch not the switch itself that failed. The wire fatigued over many years until it broke free from the connector, creating an open circuit.

To fix it I found it easier to just unbolt the seat and turn it around to gain easy access to the switch and wiring. Warning- if you do remove the seats and your care has the side impact airbags, be mindful of the plunger that activates the airbag. I think it'd be pretty hard to set if off without actually dropping the seat directly on the plunger, but it's worth mentioning.

The thermostatic swtich can be pryed out of the foam. You can test it with an Ohmeter. When cold, the switch should be closed, no resistance across the terminals. When hot the switch should open, resulting in infinite resistance. If the dealer is correct and that is what has failed, then the switch will be open at any temperature.

I wish I had the ability to post pictures to this site, it may be possible but this software is as bad as FidoNet or Compuserve.

If you splice in new wiring make sure it is a least 18 gauge. The thermostat (which I really doubt is the real problem) is stuck into the rear portion of the lower seat cushion through a hole in the foam. Most of the time when the seat heaters fail it is due to a bad heating pad.

I have posted some stuff here:

http://volvospeed.com/vs_forum/index.php?showtopic=94387&st=0&p=1245971&#entry1245971

There was a recall on the thermostat on some of the cars that replaced the thermostat with a "Black Box" that mounts to the front of the lower seat rail.

...Lee