AWD Center Carrier Mount Failure
I was just about to reply that the center carrier mount was definitly causing your problem when you posted that you removed your driveshaft and found it out for yourself. I just went through this with my 98 V70XC AWD too. I didn’t settle for leaving it out and wasn’t going to pay 1,100-1,400 at the Volvo dealer for a new one. The dealer will tell you that it cannot be fixed but I’m sure you know from reading here it can be.
I got a rebuilt one from Colorado Driveshaft www.coloradodriveshaft.com They are really great and make it pretty easy getting a replacement. They pay all the shipping both ways, and in the end you are only out $475 or so. Call them in the morning.