Ah, so I have the solenoid operation backwards in my mind then? The initial state of the solenoid is then for maintaining 3rd and it takes power applied to the solenoid to let it go up to 4th, as in "go into overdrive". In the 900 manual Volvo calls the circuit "AW70/71 overdrive with kickdown inhibitor" which somehow misled my thinking. In that case you're quite right and the prime suspect and first thing to check would indeed be that exposed wire hanging there, not the solenoid itself. Anecdotally here the solenoids are not known as trouble spots. I've spent a fair bit of time crawling under a trans in the past year or so and always make sure that wire will stay away from the linkage or chafing on the body. There are also a number of flex failure and possible pinch points, including at or in the shifter assembly plus there's the thin wires to the OD switch that flex in their small harness close the base of the shift lever (they don't go all the way down and out the bottom, just inside the handle).
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Dave -still with 940's, prev 740/240/140/120 You'd think I'd have learned by now