Had a similar problem in my 89. From what I gather, electrical interference is terrible in these later year Volvos. You may want to consider mounting the radio in the lower radio mount (by the gear stick). I just recently put a "new" radio in my 1980 245, so I had to mount the radio down there (since my car doesn't have the modified dash). I never have any AM static problems (other then sitting under traffic lights and such) but then again, my radio is an analogue 8-TRACK player. Digital radios can be much more sensitive to interference.

Do check your grounds though. DON'T LET SOME CAR STEREO SHOP TALK YOU INTO A NEW RADIO!!! Unless you really want to "upgrade" to a CD player, replacing the radio won't do a thing.

If you do put a radio in the lower mount, just be aware of a problem I run into with the 8-track player. When I'm driving around, it is very difficult to put a tape in while I have the car in either 1st or 3rd gear. Since cassette tapes are smaller then 8-track tapes, you shouldn't have too much of a problem, but CDs aren't much smaller then 8-tracks.

I could go on, but I think I've said enough for now...