You are experiencing a very common problem with early S40s and 850s.

There's no reason to bend the arm if you have a Dremmel tool.
It's a pretty easy fix. I had to do it on my '01 S40 and '95 850.
http://www.matthewsvolvosite.com/forums/viewtopic.php?t=34250
I got the wipers to the top of their sweep (by turning the ignition off at the peak) and then removed the wiper blades. Then moved the arm back down toward the windshield to see how much material I'd have to remove. Then just kept grinding away as instructed until the arm just rested on the glass. Reinstalled the blades and have been delighted since.

The wipers on both cars work excellent now and stay fixed to the windshield in stormy conditions.

Edit: There was no reason to remove the arms from the car to do the repair. I actually think it was better to leave them on as it made it easier to judge how much material to remove.

The early S40s were made of pot metal! Pure junk. Go ahead and bend the wiper arm, just be careful not to bend it too much. A fellow brickboarder was replacing the blades on her S40 and the arm fell on to the glass and broke the windshield.

You cannot get a replacement spring for the wiper arm. New arms are $40 at FCP.
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Keeping it running is better than buying new