This is indeed baffling.

I studied all of the 1998 S70 wiring diagrams in search of a 2 pin connector with blue/white and blue/red wires. If you did have prewired connectors in place for the "euro" side marker/directional lamps, the colors would be green and black.

One possibility is a pair of wires that run from the Engine control unit to a solenoid valve used to purge the evaporated gas fume storage canister. Those are the correct colors and a malfunction might trigger the "lambda" lamp. The noise you heard may have been that valve operating in syncronization with the flasher. However, I may be missing some details of your wiring arrangement, as I do not understand how connecting to those two wires could flash a bulb.