So our '98 has been great, but now the ABS light stays on and my mechanic says "no worries", as the condition is common, the braking system is basically unaffected, and the [ABS] sensor is pricey to fix (approx. $700). Anybody out there with advise on this? Is the ABS system likely faulty, and if so how critical is braking without it??

As some others said, your ABS module has failed. Common after 80,000 to 100,000 miles. You still have regular brakes, but not ABS. Your mechanic is nuts. It does mean a hell of a lot. ABS brakes are the greatest thing since sliced bread. They save mucho lives or critical injuries. They saved my ass from plowing through an intersection in the snow/ice in Denver. Another time I was able to still steer and avoid hitting a truck on ice. Get rid of your mechanic if he really says don't worry and don't bother to fix. Some people are stupid.

For what it's worth, I bought a new ABS Control Module on eBay for $230.00. With the right socket, it's easy to swap the controllers (15 minute job).

As I understand it, you don't have ABS when it is malfunctioning
(when the light is on). You do have regular "old fashioned" brakes.

You can find many posts on this issue since it is a common problem.
You might pop over to the NHTSA site (http://www.nhtsa.gov/hotline/)
and file a report. Many other Volvo owners have done this and many
feel it is a safety issue that Volvo should address.

There have been many positive posts from Volvo owners on this board
regarding Vitor's service for repairing the ABS unit. When mine fail
(I have a 95 and a 98) I'll be looking him up.

Thank you Ray N.
You are 50% lucky, the 95 850 ABS unit never fails. 96 and newer is a different story.
As it happens I was 1/3 lucky, I have the 95 850T, 96 850 GLT and 98 V70, the 96 failed around 95,000 miles a month ago and the 98 failed at about 85,000 miles two years ago.

Most likely your ABS Control Unit has failed. All of them will eventually fail after they reach 80,000 miles or 5 years.
Reading the codes costs about $125.00 and about 95% of the diagnosis are defective ABS unit.

The reference for a repair service listed on eBay is about my service.

Here's information I have on this subject.
Vitor's ABS Web page
Click on the ABS / TRACS Link

If reading codes costs $125 then this may be worth a look at:

http://www.onboarddiagnostics.co.uk/volfcr/index.htm

It can be used with the ISO only interface cable from obd-2.com

There's a free working demo at:

http://www.onboarddiagnostics.co.uk/volfcr/demo.htm

There is plenty on information on this site concerning this issue. I had my ABS unit fixed by someone on Ebay for just over $100. Search for Volvo ABS on ebay.