Larry, be sure that you have a '79 with Lambda sound. I have a '78 242 GT that came with Lambda sound and put the re-built engine in that came from my old '79 242DL that had an EGR system. Although I replaced everything as a Lambda system w/ O2 sensor, I learned that not every Volvo had the O2 sensor in use in '79.
The fact that your car was operating without one says that it may not need one. If the car ran at all with the Lambda system and O2 sensor not hooked up makes me wonder why it ran at all. Check to see if it is an EGR system. If your manifold was replaced, it could have the old O2 sensor there as a plug, not doing anything, and the EGR bypassed. BTW if the sensor was not hooked up, the computer (If equiped) would lean out the fuel to where it would show noticably poor performance.
If it is an EGR system, a new or cleaned valve would help the mileage issue.
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'89 245 Sportwagon, VX cam,K&N, Bil's, IPD susp & exhaust
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