Volvo has nver come out and said "do not use 17" tires"...All you have to make sure is that the overall diameter is not beyong the recommended limits.
17" tires do not necessarily give you "awful ride". The suspensions of the new V70s are night and day compared to the old generation suspension of the 850s and previous 70s. Therefore, you can't and shouldn't compare the ride of a new V70 with 17" alloys to that of a C70 with 17" alloys. Two different cars with very different suspension calibrations.
I can compare the ride of an 850 or S/V70 with 205/50-16 tires to that of my car (it is equipped with 235/45-17 tires) and the difference is night and day. Actually, just in a few years of test drives, I did bend a rim twice with the older cars. I have been driving my car for about 19000 miles and never had a problem.
Is there more chance for damage from potholes? Potentially, yes. But it also depends on the suspension settings and type of tire. Back in the '90s we had many customers who blew up their 16" tires (Michelin Pilot MXMs) which had an aspect ratio of 50. The owners of S80 T6s (225/50-17) and S60s plus V70s (235/45-17) who I know of and have had blown tires are less than the fingers of one of my hands.
Yannis
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2001 V70 T-5M SR, Classic Red/Graphite Lthr., ipd ME7 ECU Upgrade, K&N Air Filter, Cold Weather, Dolby Surr. Sound, Rear Spoiler, 17' 'Tethys' alloys
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