We have a 96 850T wagon and had the same problem a few years ago. Yes it was the ignition switch (after the dealership tried changing everything else). My wife figured the problem out one day in our garage (after the dealership gave up) because the headlights came on briefly and then went off when the engine was running. She found that by backing the key of slightly they came back on . . . also the shift-lock swtiched off.

Apparently there is a fault in the ignition switch where it doesn't come back to its rest position properly . . . but as usual there's no recall from Volvo about this.

Gary