Hi again, and thanks for all your replies and support. Here is the latest...

The dealer, while acknowledging that they have done nothing wrong, has agreed to reduce the cost of a Volvo reman tranny by $530 to $2339 installed. Yippee (with much sarcasm). I am thinking that the tranny was probably neglected by the previous owner and crapped out after receiving some love in the way of a ATF flush. A similar thing happened to our 87 Nissan Pathfinder, albeit at 208000 miles. The numerous responses I received indicate a trend that unfortunately I was included in.

The dealer also reduced the cost of the cat converter from $1100 to $750 to "help out". I can get a new Volvo cat from Boston Volvo for about $550 + $50 install at a reputable muffler shop-so I think I will save the $150 and go this route.

We are still talking to the used car dealer (different from the dealer previously referred to, who is a true Volvo dealer) where we bought the car about the issue. I'm not sure if he runs a cheesy operation or is really a nice guy-I'll wait until he responds before I pass judgement. It seems like he may be willing to compensate us for a little. So after getting a new tranny, cat converter, rear main seal, oxygen sensor, and of course the car, we will have spent a total of $13712-still about $1300 below blue book.

Thanks again for all the help-I can't wait to get the T5 back, it smokes (in a good way) when it runs! I will post an update in a few days-Adam

Oh yeah-I have Carfax until 6/23 if anyone wants to research a VIN#. Email me at tikiman2@cox.net if anyone is interested.