I sent my ABS ECU unit to Vitor (Vic Rocha) after 2 years of worrying about an expensive dealer replacement of the ABS ECU. For a very reasonable fee (1/4 of what the dealer wanted), he returned the unit back to me within 5 days including transit time. It has worked like a charm with no problems whatsoever in the four months since. Two thumbs WAY up!!!

All the ABS control units (Installed on 96 and newer 850, 70 series and S80 models) will eventually fail after they reach 65,000 miles or 5 years. The average is 85,000 miles and/or 6 years for failures.
The erratic ABS light and/or no trouble codes is an indication of a defective ABS unit.
A dealer will charge from $60.0 to $120.00 to diagnose the problem and about 95% of the cases the mechanic will recommend to replace the ABS control unit.

Here's more information on this issue and a replacement alternative.
Vitor's Volvo ABS website

Click on the ABS / TRACS Repair link.

Check all of your wiring. I found that some of the insulation had and come off on my 96 850GLT. The problem with mine still required an ABS ECU rebuild by Vic Rocha, but the wiring thing would have gotten me sooner or later. Vic does really good work and the cost is about a fourth what the dealer will want for just parts. I took mine to the dealer first just to get a diagnostic done. Cost about $80 but at least I felt sure it was the ABS ECU before I pulled it out and shipped it off. The special torx that is required to remove the ABS ECU is available at higher end part stores. Mine cost $12 from NAPA. Unit is easy to remove and replace, and no ABS light since..

http://home.earthlink.net/~vicrocha/Volvo_Parts/Volvo_V70_ABS.htm

Good luck

Oliver

64 122S
66 1800S
86 245DL
96 850GLT

At that age, most likely the ABS electronics. Search this forum for Vitor, who repairs them much cheaper than dealer new. Try gently wiggling the key whith the error light on and if that makes a difference, it's the electrical part of ignition switch.