Not only have I never heard of a VVT unit failure, the valves do not change THAT much. Your pic shows the cams in about the correct spot, the top cover needs to be inplace to verify. Shine a strong flashlight on the crank and you might be able to see the crank mark. A trouble light won't work.
The belt looks to be in good shape, but check the tensioner anyway.
If you haven't seen this thread yeat, it makes for good reading. Especially the part where the crank gets turned 90 degrees past TDC and then back to the alignment marks, before removing the belt:
http://volvoxc.com/resources/how-to/pdf/timing-belt-replacement2.pdf
Have you tried to add oil to each cyl to raise the compression? Dip a straw in a bottle of motor oil, place finger on top, carry to sparkplug hole, release finger, no mess. About 2 inches of oil in the straw = one table spoon.
Klaus
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Two good Volvos, a 220 and a V70R
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