Peter,
Yes the 850 is famous for failing A/C...however...if you read your owners manual, the A/C disengages in stop and go traffic and under heavy acceleration. Kind of a smart idea if you ask me....

Sound like you have a leak in your A/C system. The rapid cycling is due to lower in Freon (R134). You need to check the Freon level as mentioned in other post and add dye to locate the leak. If it is a very small leak, then you can just recharge the A/C to properly Freon level until it cycles again. Otherwise, locates the leak via the dye and fix the leak. Most likely is the evaporator, very famous issue in 850. The cost to replace evaporator is about $1200.

Ching-Ho Cheng
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1995 855 NA, Bilstein Strut & Shocks, Volvo Protective Grill, K&N Filter, E-Code Lens, Alpine CD-Changer, AutoDim RearView Mirror, 6000K HID

I'm not sure how you checked the refrigerant level because I checked mine in the past with the Interdynamic Pressure gauge that's sold with their recharge kit and it was within the normal range but the AC was still cycling off and on. After adding a can of R134, the rapid cycling stopped and the AC has been working fine for over a year now. I did add a metal and rubber sealant before recharging though because my previous recharges lasted only a few months.

It may be worth it to have an AC mechanic evacuate the system and weigh the amount in your system to give you a proper recharge and also put in a dye to look for the dreaded evaporator leak. Overcharging the system can mess up your AC system too.

I bought my 850 3 years ago and was also horryfied by the stories I read on this forum. My AC also behaved similarly - good colling at highway speeds, very mediocre in traffic. 3 years later this is all the same, and I did not touch the AC at all. My AC is also cycling quite often, but it blows cold air, so let it cycle!

I never had a car that would produce good cooling when idling in traffic. I am sure these cars exist, but I am yet to see one.
My advice for now - do not do anything, keep driving.