The throttle position sensor does have another function (two if it has the Turbo+ kit). Yes, the idle switch goes to the engine controls but it has nothing to do with air flow. All ignition advance is inhibited at idle and must be closed to set the ignition timing. When the switch circuit is open, the ignition timing starts advancing based on RPM, AMM output and coolant temperature. If you were to adjust the distributor position this way, the static timing (what it would have/should have been if the switch had been closed) would be LATE (retarded) by the amount of advance added by the ignition computer. In plain english, setting the ignition timing with the switch curcuit not closed ensures late spark and loss of power.

If the switch is operating correctly, not only will you hear the click with the engine stopped, but you will see a 10°-12° jump using a timing light at idle, as soon as you crack the throttle off idle.

On Turbo+ kit equipped engine, the WOT section of the throttle sensor is actually used. It goes to the turbo controller which bleeds manifold pressure away from the wastegate and allows the boost to climb higher only at WOT. The controller then maintains the higher boost pressure so long as the throttle is mashed to the metal...let up just a touch on the pedal and the boost pressure goes directly to the wastegate and gets regulated the normal way.

Now to your power loss; Make sure the ignition timing is set with the switch closed. If this was correct, shut the engine and set the timing marks on TDC and remove the 3 bolts and 1 phillips head screw from the upper timing cover and sneak it open an inch or two. Use the service manual or go to the library to see what the marks inside look like. What you should see (you may have to turn the crankshaft one full turn and come back to TDC) is the tooth that's in line with the little dimple on the front edge of the cam sprocket should be directly in line with the mark inside the plastic backing plate (rear belt cover). If it is slightly toward the passenger side, the valves are late/out of time. The belt could have jumped (never retensioned) OR it may have been assembled that way after the last timing belt replacement. Either way, the valve timing (followed by the ignition timing) must be corrected. If the belt is nearing 50,000 miles / 80,000 kM then fix the misalignment with a belt replacement.

Another place to look, take off the intake boot at the throttle body, have someone floor the accelerator (moving the linkage on the engine gives a false reading) and LOOK at the throttle plate with a small mirror to be sure it is parallel to the bore. MAKE NO ASSUMPTIONS that it is opening properly. Mine ran pretty strong on the road when I got it, but the throttle only opened about 80% and also was weak off the line. Volvo has no WOT stop so the linkage CAN be adjusted to open the plate past 90° meaning it's starting to close again.

There are other things to check but these three will probably uncover the cause.