My 95 tranny will not shift from 1st to 2nd if the selector is in low. I haven't tried to run it up to 5500rpm because that isn't good for the engine or tranny. If I select low under 25mph, it will grab 1st gear. Above 25mph, selecting low will get me 2nd gear until I get to 24mph - wham... 1st gear! Selecting 3rd is OK.
I would suggest a tranny flush, it is easy to do in your own garage. I just buy a case of Dextron III (12 quarts) and stop at 12 quarts. Clean enough for me.
If it is the PNP, first take the air cleaner box out and check for leaves and other dirt on top of the switch area. My V70 was full of debris. Clean it out with a hose or vacuum cleaner. That dirt will only make matters worse.
My cars usually warm up within the first mile of driving, until it gets below zero F. Then it takes 2 to 3 miles of easy driving.
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(V♂LV♂s 1975 164, 1995 854T, 1998 V70R)

First thing to do is check your transmission fluid to see if it's burned. If so replacement should help. Alot of people recommend synthetic. I've noticed here that the '95 tranny's seem to develope some unusual shifting problems. I've put an auxillary cooler on mine and it has helped but I have problems with it shifting into the winter mode when it gets hot, clunks going to reverse sometimes and first-second shifts are not real smooth. I can tell when this "winter mode thing" is about to happen because the downshifting coming to a stop seems very notchy and not smooth at all. It seems heat related because running with the ac off seems to help.

Hi - I can't help with the PNP, but I can echo what someone (I believe Klaus) advised me of - don't downshift when the transmission is cold. It sounds like you know about this. I live on top of a hill, and now in the morning I use brakes only to keep the car from accelerating from 45 to 55 mph. The one time I had the blinking arrow and strange sounds and behavior scared the heck out of me. Once it warms up, I still downshift frequently to slow the car when coasting. It sounds like you may have other issues, and I hope you get it fixed.

Assuming you have been diligent with your transmission flushes (?), I would suspect your PNP switch first as your first set of symptoms sound exactly like a PNP issue. Part is not expensive, $80 t0 $110 at FCP Groton. If you want to DIY, excellent instructions on Volvospeed.com. Probably about a 2 hour job if you take it to a shop.

However, first try 'raking' the shift lever (with engine off) back and forth 15 times. This will often clear the contacts and clear the problem thereby identifying the PNP as the culprit. The problem then may not come back for quite a while if it was just gunk on the contacts or sooner if the switch is indeed worn. If a code has been set (check engine light on), and the car now shifts normally, you will need to clear the code.

One other reason I would suspect the PNP is that it tends to act up in the winter when things are cold and damp
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96 850T, Bilstein HD, IPD swaybars