I had same problem last winter. It would work by moving the gear shift back and forth. After the car warmed up everything was fine except when downshifting into passing gear. It would hang in passing gear long after it was needed. It was very apparent when using cruise control. Well, the stuck-in-first problem returned as soon as cold weather hit.

I replaced the PNP switch and now both problems are cured. Wasn't a bad job. The instructions at Volvospeed Bay 13 were extremely helpful. You don't need the special alignment tool. You can get things close then hook the battery up with jumper cables and check to make sure it starts in nuetral before tightening everything. The old switch was all gummed up from the grease inside. Probably could clean and re-use, but I opted for new switch (Volvo part from FCPGroton $87 pluse shipping).