I agree that the sequence of events doesn't argue strongly for a failed ignition switch, however ignition switch failure is super common on 850s, basically every one of them fails by about 200k (YMMV), and causes many bizarre and seemingly illogical electrical problems. Grab one from the junkyard j...

...Check Engine Light is on when car is off, key is out of ignition. It goes away when I have key on position 2... Sounds like ignition lock is failed,but could be a combination of failed lock and something fried. Check fuses first. Just checked all fuses. Not a single blown fuse. The ECU can fry c...

I have a 1995 Volvo 850 N/A Manual Transmission. It was driving fine 50 mph then the car clunked like I shifted bad, and then the engine died. I coasted in neutral to the side, then eventually got a tow. I tried to crank for about 2 minutes with gas pedal down too (not in one sitting, starter is sti...