Replacing a coolant sensor is a fairly simple repair, but can be a bit of a PITA. Don't worry, a bad coolant sensor isn't necessarilly indicative of any other cooling system problems.

1. Allow your engine and coolant to fully cool
2. Syphon coolant out of plastic reservoir
3. (Optionally) Detach the overflow hose from the reservoir
4. Pry and lift plastic reservoir and free it from the retaining clip (this is the most difficult step)
5. Turn the reservoir upside down, pull out and remove coolant temperature sensor probe from the bottom of the reservoir (pull hard)
6. Disconnect plastic electical connector and discard bad sensor

Installation is the reverse.

Good luck!

No specific information on replacing the sensor, per se, but I can tell you that I've had coolant level warnings on my car before. They usually preceed my discovery of a leaking heater core -- a VERY common problem on the 850/70-series. Try this thread from Swedespeed for more info:

http://forums.swedespeed.com/zerothread?id=25204


I went with the UK-spec Haynes manual for replacement info. For that matter, if your coolant level sensor really IS giving you problems, that reference will probably have instructions, too. IPD sells it.

--
Jim Rothe, '99 S70 T5M,
http://www.jimrothe.com/volvo/index.html