Alright Homer you cannot simply loosen the camshafts on a white engine like you can on the old red engines. The earlier 850s were prone to having the valves actually stick in the guides and cause just the problem you are describing. It has been quite some time since I have seen one do it but they do do it, even the early 960's do it as well. The cure was to crank the piss out of the car until it catches and runs and then run the engine in excess of 2500 RPM for 10 minutes or better. The idea was that when the engine is spinning this fast that the valves actually rotate in the guides and this will knock the barnacles off of them. It is what is referred to as an Italian tune up and believe it or not was a real bulletin from Volvo back in the day. When we very first experienced this problem back in the day we actually took a few cylinder heads off of these cars and sent them out to have the valves gone through because as your mechanic has figured out, they will leak down past the valves on a leak down test. Understand that the valve only needs to hang open the smallest amount to knock the compression down to where it will not catch and fire. My advise before you tear that head off is to have the tech put it all back together, hook up the battery charger so it has plenty of juice and can spin that motor as fast as it can and to crank that sucker until it starts and runs. If in doubt do a quick check and make sure that it does in fact have spark, fuel pressure, and that the injectors are clicking.

Good luck,
Mark