Mike,

Obviously I can't offer any input into your warranty coverage, but as to your question on the bevel gear, here's a summary:

Despite all the negatives people post here the Volvo engineers came up with a pretty elegant solution for their AWD needs, low in weight, simple and using a lot of proven parts from the RWD parts bin.

Mechanically the sytem uses a bevel gear set on the transmission to create the 90 degree (in relation to the FWD) output to the rear drive shaft. The rear drive passes through a viscous coupling -- which is a fluid-based device that allows for different rotational speed on the input and output. For example input shaft running at 1000rpm and output at 980rpm due to slippage in fluid coupling.

So at this point, we've got power turned and heading to the rear wheels by the function of the bevel gear, and we've got the necessary slippage to allow for different wheel speeds front-to-rear by the viscous coupling.

In the design there is a slight gear ratio difference between front and rear that creates the 95% front-drive bias in the system.

When the speed difference between the front and rear drives grows past a certain point, the system assumes that the front wheels are slipping and starts to "lock" the viscous coupling -- moving more power to the rear drivetrain.

(This simple point is the reason for the focus on keeping 4 equal sized tires on the car. Without equal tire sizes, you can create enough of a rpm differnce front-to-rear the make the system 'lock' the coupling.)

Now on our (simplified) trip down the rear drivetrain, the only thing left is the rear differential and axles, which are pretty standard Vovlo stuff from their RWD series cars.

Summarizing: Transmission -> Bevel Gear -> Rear drive shaft -> viscous coupling -> rear differential -> axle shafts -> rear wheels.

The problems with the bevel gear come when the viscous coupling goes into 'lock' mode and the car is on dry pavement, ie when it shouldn't be locked.

Something has to 'give' to allow for the rotational speed differences in the drivetrain that caused viscous coupling to lock (usually tire size differences too great for the allowance built into the viscous coupling) -- simply stated, something has to give because the rears are turning faster than the fronts -- and....the bevel gear gets destroyed.