I own a 97 850 T5 (Automatic) with 143,000 miles on it, most of them highway miles. I've reviewed the many questions and answers related to transmission problems but have yet to find one that matches mine. So here goes.

On the highway at about 70 MPH, the arrow light will pop on and I can feel the car shift out of the overdrive (torque converter?) with a resulting 300 RPM or so increase. Then the light will go off and the RPMs will drop back down. Sometimes it repeats but usually does not stay on longer than a few seconds. If it stays on more than 10 or 15 seconds the check engine light comes on. I have not seen any change in shifting otherwise.

I brought it to the dealer who said the code identified the gear position sensor which they changed along with a fluid flush. The problem remains. I'm hoping I won't need a transmission. Any ideas? PNP?

The gear position sensor IS the PNP switch.

I would agree that the PNP switch could cause that. With that milage, replacing the PNP switch is probably a good idea. There's instructions for DIY at www.volvospeed.com -> Bay 13.

The lamp, as I'm sure you know, means OD disabled/low gear. Your car is probalby shifting from OD (4th) down into 3rd and then back up, or perhaps moving in an out of Lockup in 4th (depending on RPMs).
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Brandon
95 854T 92k
Pictures =)

The PNP was likely the culprit as the fault code showed. However simply replacing the PNP switch won't fix the problem unless it has been aligned properly using a Volvo alignment tool. Most techs have replaced so many they get it right the first time, but I'm suggesting yours may be out of alignment and the dealer should take a second look...the only other thing that comes to mind is a faulty Winter/Sport/Economy switch which is turning on the winter mode...as far as the check engine lamp goes...that is a reaction to the transmission acting up and in turn effecting the emissions spec. Anything that tampers or changes the emissions on the car, even for a moment will trigger the "check engine lamp"....fix your problem and the lamp won't come on anymore.