ok, after driving today, I am really convinced the hesitation is engine related not transmission; however, it is not throwing new codes since I cleared them several days ago.
Symptoms:
Starts and runs great when cold.
once it begins warming up you can feel just a wee bit of hesitation upon takeoff like from a stop light
once completely warm, lots of hesitation [almost as if it wants to cut off] when accelerator is applied from a dead stop (like at a stoplight that just turned greed). It then kind of catches and runs like a champ through the gears and upon cruising.

I would just replace the plugs, cap, rotor, and coil but don't want to just throw money at it without proper diagnosis first especially since oem ignition stuff for Volvo is not cheap.

I can visually inspect the cap, rotor and plugs. anyone have specs to test the single coil?

Thanks

How many miles do you have on the spark plugs? Normally it's not wise to start throwing parts at a car in order to solve a problem, but in the case of cylinder misfires, it's not a horrible waste of money to just go ahead and replace the plugs. You should be using the old fashion copper core plugs like Volvo OE, Bosch, or NGK that can be purchased for about $2.50 each. Avoid the fancy "designer" plugs with their little pointy electrodes and "super-duper-quadruple-multi-cross-fire-megamilage-producing-answer-to-everyone's-prayer" layouts. Those are the ones that the guys at the mainstream auto parts stores are going to say you can't live without.

Also, I don't know if 1998's have individual coils atop each plug, but if they do you might want to swap them around when you are replacing the plugs so that in the case it wasn't a plug problem you might see the fault codes move around to other cylinders.
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Current rides: 2005 Volvo S80 2.5T, 2003 Volvo V70 2.4NA, 1973 Volvo 1800ES (fixed the brake fluid leak - now on to the ignition)

I have the same car but with a few less miles so i looked up that error code and got this
http://www.obd-codes.com/p0301