No actual turbo experience so just theorizing here, but turbos do tend to run hot when you use the power and this can shorten the life of the intake valve stem oil seals. Your smoke episodes seem to coincide with high vacuum (idle, light cruise) and that is when the oil gets sucked down the valve stems. Also it will be worse when the oil is up to full operating temperature and has thinned out (low viscosity).

The percentage cylinder leakdown is only part of the info that should be gained from a good test. Observing bubbles in the cooling system, listening at intake, exhaust and oil filler cap can indicate where the air is leaking to. Did the shop indicate any of these? Anyway, your compression readings don't suggest a block rebuild is necessary at this time.

If the head is being removed anyway, it should cost little to have the intake valve stem seals replaced.

And don't be tempted to use thicker oil; that's like wearing a tweed sport jacket to cure dandruff. :) Just hiding the evidence but not solving the problem.
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Bob: son's XC70, dtr's '94-940, my 81GL, 83-DL, 89-745(V8) and 98-S90. Also 77-MGB and some old motorcycles.

The #2 compression figure is low but I think it shouldn't cause that much oil usage. Did they try squirting some oil in #2 and checking the compression again? If it comes up then it's the rings but if it stays low it's a valve. Volvo turbo heads tend to warp down the middle. If there's a gasket leak then two adjacent cylinders should be low. There's no oil or water passages between cylinders. Remove the drain in the intercooler to see how much oil comes out. You usually collect just a spoonfull at the most. Remove the throttle body intake to see how much oil is collecting in the intake tubes. Are the rubber intake system sections oily? If so the compressor bypass valve is bad. Take the valve cover oil fill cap off while running to see if there's alot of pressure coming out. That would indicate a clogged oil seperator. The intake manifold fitting for the seperator tube does get plugged with hard carbon deposites and needs to be drilled out.

Your problen is your crankcase breather tower is clogged. Both of my 240 model Volvo's blew the main seal on the crankshaft due to too much internal pressure form clogged breather tower. Six months after I brought my 89/740 turbo wagon, the smoke started coming from the exhaust along with oil comsumption. Clogged breather tower. REPLACE NOW!.. It's under the intake manifold. You should have oil blowing onto your valve cover from this increased internal pressure. You can replace without too much problems. I choosed to remove the intake manifold for easier access. Glad I did as the intake manifold gasket showed signs of failing. I guess turbo's are hard on these gaskets. All high mileage Volvo's with these's breather towers should check the condition of these towers. Could save some money not having to replace engine ol seals. Dealers and auto shops should be aware of this problem. Even if you change the oil often, these towers just bake the oil from multi hot and cold cycles. This is your problem. Paul Clifton :)

It depends on how much you like the car. If it is a hobby car. How much will it cost to fix? It appears the head will have to be redone anyway. I would redo the block as well. But that is just me. Was there any water in oil when you checked it? Was it milky looking or anything? When it blew earlier?