So to provide a little piece of mind I installed a Magnefine filter, http://www.emergingent.com/subpage1Magnefine.htm. I've install one before on my Ranger, but the wiggle room difference between the Ranger and Volvo is enormous.
Here are the steps to install the filter along with some pictures. I was very nervous cutting a hose that should cost $10, but Volvo charges over $100. I was not even sure I was going to be able to get the filter installed without kinks in the hose.
Installation Steps:
1. Remove the transmission cooler return line from the radiator. The one with the green clip on the top/driver side of the radiator.
2. Cut the hose about 1.25" from the metal fittings. You need about an 1.25" to insert the top side of the filter into.
3. Rather then shorten the hose I decided to just reroute the hose under the near by transmission inlet hose to give it more length and better fluidity at the bends. See the picture for the hose to reroute under.
3. Attach the filter to upper hose first, as this can be done completely outside to the engine making it easier.
4. Now with the lower hose rerouted install the filter into the lower hose. It's a little difficult but eventually got it pressed in. Took about 5 minutes.
5. Make sure the upper hose fitting is positioned to nicely go back into the radiator without having to twist it. If you need to twist it just spin hose at the filter. There is no need to introduce extra tension in the hose.
6. Reconnect the hose to the radiator.
I always wanted to do this on my wife's 2001 S60... I just did a drain & fill a month ago. The car still runs great at 102,000 miles... What size filter did you use ? Was it 3/8, 5/16 or 1/2 inch? Your help is greatly appreciated. Thanks!