The Lambda light is the equivalent of the Check Engine Light in the US. It is essentaially the Malfunction Indicator Light (MIL) for the OBDII On Board Diagnostics system. Volvo names their emissions control system Lambda Sond or some such name, and in the Canadian Market at least, they refer to the MIL as the Lambda light, and they use the Greek symbol for the the letter Lambda on the light instead of the words "check engine". It has nothing to do with the normal service frequency reminder, and when lit, is an indication of an emissions system component or polled reading being outside of the specifications for the model and year of vehicle. At times, the engine may still be running well, and at times, the light may be the messenger of a serious problem. The posting here are full of diagnostic information re this issue. Like you, I have a 1994 850 (Turbo), and the '94's have a nice little push-button and LED interface under the hood to get the readings and reset the light. Again, all the info you could ever want is available on this site. re this.
Good Luck,
Doug