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No, you cannot re-torque the head. The factory bolts are "torque to yield" style and will likely break if you try to give them another twist. I guess you can try a "head gasket in a bottle" approach, but I wouldn't bet on that being a long term fix.
For what it's worth, I'm gearing up to do the head gasket on my 241,000 mile '95 854T because it is drinking oil and coolant at alarming rates. Not leaking out the side like yours though. Also will do the valve seals because it smokes after idling for a few minutes.
I had the same question at to whether I should spend any money to fix it or just run it until it dies completely. It's in otherwise good condition and could still be worth probably around $1000 on the market - in running condition. I couldn't sell it privately without full disclosure though.
So for the repair, it seems aftermarket parts from the popular Volvo suppliers run around $110 for a head gasket set, $180 for a timing belt kit, $170 for a PCV system kit, $100 for a valve spring compressor, $40 for head bolts (you must use new ones) plus I'll guess another $150 for other misc. parts - hoses, clamps, fluids etc. So just parts are going to run around $750. Maybe I can get away with just a timing belt and save some there. Even rent a spring compressor from Autozone can save a few bucks. But the PCV hoses are beat, so I know I need those. Anyway, $750 in parts is probably a decent estimate. If it's less, I'll have some extra beer money.
But if the head is warped and has to go to the machine shop, I'd imagine that will run at least $400 to $500. Maybe even more since it's a 20 valve head. So now we're up to $1,250. Hmmm. Worth it?
Of course all this assumes me doing the job so there is no labor charge. I'd imagine it'll take me about 40 hours by the time I prep and clean everything. I've no doubt a shop would take maybe a 1/4 or 1/3 of that time, but this would be my first head removal on a whiteblock, so it'll take longer.
Me? I'm going to dive in. I've grown to like this car and I enjoy wrenching on things. I'll cross my fingers that the head does not need work. If it does, then all bets are off and it'll probably be donated to a local charity.
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