Just an update: I'm still having the same problems 6 years later.

My '93 sedan has been scaring me with the lack-luster braking performance lately (especially after my emergency brake shoes disintegrated) so I went so far as to buy new stainless steel hoses and have an independent Volvo shop (trusted) install them (I'm ashamed, but I simply don't have the time to do it myself these days).

No change in braking performance. I was being somewhat abusive on the way home from the shop and stood on the brake pedal as hard as I could - rears locked up but not the front. The front pads show little evidence of wear, as before.

Although the brake pedal feels just okay, and there is probably some air trapped in the system, it seems the front brakes just don't apply as hard as they should. And the car does not stop like it should. After the Volvo shop with nearly 40 years experience bled the brakes, I redid it and still no help.

I'm still operating on the theory that the ABS modulator has air trapped inside. I have not yet tried isolating the circuits to try to identify the one with the spongy pedal feel.

I read a T'bricks post suggesting that the only way to get all of the air purged from an ABS 240 is to activate the ABS several times, bleed, then do it again. I've been tearing up gravel the last couple days in an attempt. We'll see how it goes.

I did learn something interesting recently about the ABS - you can perform tests at the connector (under the friggin' passenger seat) to activate the pump and the solenoid in the ABS modulator. Might be worth trying while I bleed next time. Actually, you can activate the pump by jumpering terminals 30 and 87 of the relay on the ABS modulator. I would guess you could do the same with the solenoid . . . this might lead to me building an interrupter to cycle the solenoid and pump while bleeding.