My local repair shop told me the sta bar bushings were worn out and making the noise. They would have to replace the entire sway bar ($440) since the bushings were bonded to the bar and not available separately. I took the car home as is, and put my thinking cap on. The sta-bar bushings did not seem...

I am taking the car to Belle tire to have them look at it, i will post when i learn something about this.

I just bought a 2004 Volvo S60 also and have the exact same symptoms, were you able to figure out the cause of the clunk and "squirelieness"?