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The LED should be blinking at an approx. 50/50 on/off frequency. The LH2.2 AMM allows you to tweak some internal voltage by turning the screw that sits (I think) to the right of the large connector on the wiring harness. The manuals I have all say that there is a plug that should cover the screw which may be the case for you. On two cars of mine that had LH2.2 the plug was missing which probably means they were tweaked prior to my ownership. If the plug is still on the AMM, drill two holes side by side into it and take a pair of needle nose pliers to pry/pop it out therefore exposing the screw...
When I set up my car after installing a new engine it took ~5 full turns to the left to get the LED to blink.
The signal that feeds the LED is the voltage swing of your O2 sensor. When was the last time it was replaced? If it's rather old, a new one will likely improve your gas mileage. Do a search on the BB for "Ford Mustang oxygen sensor", the O2 sensor that the Ford 5.0 liter engines use is the same as for your car. The only difference is the connector...which can be cut off the old one and crimped onto the new sensor. The Ford sensor costs ~$40 at your local auto chain vs. $120 for one that is made to fit your Volvo.
Good luck,
Bean
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'80 242GT 93k, '94 945T 149k, '89 765T 71k (new '94 B230FT)
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