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We purchased a 2001 S40 this year and we are extremely happy with it. It's fun to drive, a bit smaller and easier to park but not unsafe feeling, and gets great gas mileage.
We've had it for only 6 months so obviously that's not long enough to really judge how many problems it may have, but I see no reason why it would be any worse than our 1998 S70 which I seem t spend every weekend fixing these days!
I researched the model before buying and found that the S40 actually has some of the best reliability ratings of any Volvo. One site listed it in the top 5 cars! The data is really all over the place depending on the source. But there is nothing I have seen to support that this model would be worse than any other Volvo and in fact plenty of data seems to say it is one of their most reliable cars.
http://www.whatcar.com/NonCar/13105544749.jpg
http://autos.yahoo.com/articles/autos_content_landing_pages/1154/2009-annual-auto-reliability-survey-best-and-worst-models-by-car-maker/
http://wikicars.org/en/Volvo_S40
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