So I had to answer my own question in the end. I bought a new ignition switch. 120ukp +20% tax +postage ~=$200! Looking at it I was tempted to try my key in it: DO NOT DO THAT! For some dumb reason Volvo decided to keep your key stuck in the switch if it has no power to it. Fortunately I have 2 keys...

How do I remove the ignition switch on a V50 (2004 T5 ~60000miles UK)? I've got as far as removing the panel below it so I could test the wiring to the starter relay (which is fine), but I can't see how the switch is fixed in. My problem is that the starter doesn't kick in at position III. It works ...