The 240's with the 4-speed AW 70/71 automatic (really a 3-speed with hydraulically operated OD) were set up so that the default was OD on. You could press the OD-Off button on the gear lever and a solenoid would cut out the OD, at which time the OD relay (a very different unit from the manual trans OD relay) would turn on the dash warning light. This probably was because the Swedes had visions of unaware drivers howling down the freeway in 3rd gear, perhaps after unintentionally hitting the button.

Pressing the button again or switching the ignition off then on, would reset the relay to allow OD on - and kill the dash warning light.

I'm following your engine swap with interest. My LT-1/T56 powered 700-wagon in "refrigerator white" is an even better sleeper than a 240 sedan. Especially with white-haired Grandpa at the wheel. Plenty of fun shocking the hipsters in their 3-series.

--
Bob: Son's XC70, my 83 244DL, 89 745 (Chev LT-1 V8), 98 S90 (recently sold) and 2010 XC60. Also '77 MGB and four old motorcycles