Hypothesis (2)does not apply if the marker lamp housing is entirely plastic. It should not matter which of the 2 wires from the housing you connect to ground. Had it been metal, then it might have made a difference.
I have a hard time accepting that the extra 5W was enough to damage the flasher. Normally it operates 2-21W bulbs plus an indicator on the instrument panel. In Hazard mode, it has to operate 4-21W bulbs plus 2 indicators. It is possible, I suppose, that the drawing of the flasher internal circuit in the factory manual is incorrect.
What happens if you try to operate the Hazard flashers. Do all 6 (3 on each side) bulbs now stay on steady? To test the flasher, you would have to replicate all of the loads and switches, which is no different than trying it in the car.
Before concluding that the flasher is bad, make sure all 3 bulbs are on steady when you operate each (L and R)turn signal. The '98 S70s have a chronic problem with front sockets that make bad connection. Mine were replaced faithfully once a year under warranty. When the socket failed, the front turn signal lamp would not light, and the rear (and panel indicator) would be on steady.
There is no need to try a different ground. If there was a ground problem, the marker lamps would not light. Are the "back-up" (reversing) lamps and momentary high beam ("flash to pass") functions working OK? These also operate from fuses 13 and 37. A fuse can look good and be open.
A new flasher (or disecting the old one) is the logical next step. If worried about a repeat of the original scenario, take the bulbs out of the marker lamps.
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