Hi again.
You certainly have a problem with that dealer -- "hand over the title" tells me that they want the car more than they want to help you!

Anyway, first of all, the freeze plugs have nothing to do with oil passages or leaks -- they're for coolant. Freeze plugs can be described as gaps (round holes) in the side of the block that, instead of being solid, thick metal walls like that rest of the block, are actually just covered by metal caps -- it's hard to describe, but perhaps imagine a boat whose hull has portholes (the portholes being the metal caps, rather than windows). Their purpose is to be sacrificial in case the coolant freezes -- the pressure of expanding ice will hopefully just push out the caps, instead of literally cracking and bursting the block. These freeze plugs do occasionally loosen and leak, but as I noted above, the result will be leaking coolant, never oil.
By the way, they can readily be removed and replaced -- e.g., a block heater that Volvo sells for cold climates is installed by removing one of these freeze plugs and installing the heater in its place: it's just a small coil that would then be immersed in the coolant that fills the voids behind the freeze plugs.

Well, I confess that I know little about the 16-valve engine -- I had no idea that it had such a unique oil level checking protocol -- nor its sump capacity, but needing 2 quarts seems quite low, nevertheless. But my comment about overfilling is still valid -- you never want to do that.

Good luck -- I hope you find a more trustworthy shop for your car's care.
And Happy Holidays.