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Max:
Keep in mind that I haven't worked on the older 240s, so I am extrapolating a bit here. Ran into a similar situation with a 65 Ford 390 motor... full of coolant mud. Flushed out the engine with a hose, had the radiator tanked at a rad shop along with a tiny patch. Put it all back together and the sucker still overheated. Lower and upper hoses were "hot" near the engine but cold at the rad (no thermostat during this test).
Finally pulled the water pump and removed its backing plate to see the impeller (different design that a Volvo). The cast iron impeller blades had corroded to the point over the years that at best they were 1/16th of an inch tall, beyond that, the impeller could be spun on the shaft with minimal effort. Yeah toast!
Replaced the water pump and all was good, even after installing a thermostat. A few weeks later, one of the freeze plugs finally rusted through on the block and the coolant drained out. This is probably not a concern for you as the Volvo freeze plugs are about three times thicker... but it is a thought.
Good luck Max!
jorrell
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92 245 245K miles, IPD'd to the hilt, 06 XC70, 00 Eclipse custom Turbo setup...currently in pieces
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