The stripped coupler sleeve is a common problem. A bit of research on the other boards (start with volvoxc.com) will confirm this for you. It is indeed ~$100 for the sleeve and fair bit of work to do the swap, though it's not terribly /hard/ work.

Many have postulated that the sleeve in question is the sacrificial part - the weakest link designed to fail first to save the rest of the drivetrain. This has not been confirmed one way or another and there is some debate about it.

I've never heard of the teeth on the trans or Bevel Gear stripping before though. It does seem like it could easily happen if the reports of the teeth-wear on the sleeve are any indication. Unfortunately the only way to remedy your problem (the teeth in the trans) is to either change that part inside the trans or get another trans altogether. Both pretty expensive options. It's a real shame this wasn't discovered before you spent the money to have the sleeve replaced.

IMHO it might just be time to pick up a newer AWD car for that AWD functionality. The 2003+ has the new Haldex center coupler which is much easier on the AWD drive train and nearly identical in functionality from the driver's perspective - only better fuel economy and less maintenance!

It will not hurt to run the car without the center driveshaft.

FWIW I have a friend with the same car and he has taken to removing the center driveshaft in the summer to save the drivetrain and up his fuel mileage, then he puts it back in again in the fall for the winter driving conditions.

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1998 V70 AWD->FWD Turbo 200k+