"Did you have to purchase the replacement piece from a Volvo dealer?"

No. I purchased the headliner fabric from JoAnn Fabrics for around 40 bucks, it was a pretty close match; + 2 cans of 3M interior spray adhesive.

But you need to understand that this is two pieces. There is a backing material that is kind of like a resin material and very brittle. It is usually still in one piece while in the car. If you are not careful though, it can snap while trying to remove it. It is pretty easily repaired with fiberglass mesh though.

"Were you required to pull down the old ceiling liner and replace it with a new one?"

Yes, that is the only way to get the job done right.

"Is this a difficult and complicated job to do?"

Difficult - yes. Complicated, not really, but you have to be willing to spend a lot of time doing it. It is not a simple pull-it-out and slap another one in - 2 hour job.

I'd recommend that you look through the 700 FAQ on this site and check out the headliner replacement section. It was very helpful and may give you some insight into what your trying to do.