One or two tankfuls of 85 octane will not degrade the engine that rapidly. Yes, the lower the octane, the hotter the burn, which is why the old engines will 'ping' on accelleration and in hot weather. 50-100K miles for 85 octane at sea level will probably get the valves worn and start eating away at the head gasket.

I realize that you kept very good care of your car, most modern day non-Volvo nuts would have driven it into the ground at around 150K miles. So, contact a couple of shops and ask them what they would charge to replace a head - remember, the engine stays in the car.

If the head is warped, possible, then getting a reconditioned head or finding a good head and refurbishing it yourself is an option. No option will be 'cheap', but at least you will have a known car.

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Keeping it running is better than buying new