There's gotta be a leak someplace, and boy, they're hard to locate sometimes. I just found a kinked T-connection to my floor ducts and replaced it. Anyway, when you press RECIRC, vacuum is blocked to an actuator behind the heater unit, which allows the inside door above the trans tunnel to swing open. You can see it happening, right up at the firewall. With the engine running, and the button out, vacuum is applied... thus holding the inside door closed and allowing outside air in.

If the hissing stops when you depress the button, you must be blocking the leak. See if the door is actually moving; I'll guess that it isn't. One of four conditions is probably the culprit:

1. Hose needs to be connected at the actuator.
2. Hose has a leak somewhere along its length.
3. Actuator itself has a puncture, or has come apart.
4. Hose is connected to the wrong port on the control head. The rear port, farthest from the button face, is the one you want.

The hissing on engine shutdown is merely vacuum dissipating from the tank, so not to worry. I played around with this silly system for a month, and it was actually entertaining to figure it all out. A diagram from Volvo, glued onto the heater case, would certainly have been welcome!! Good luck.