P1171 corresponds to ECM261A at the upper limit on your car. According to Volvo, these are the triggers for the Upper Limit:

-intake air leakage
-exhaust system air leakage
-low fuel pressure
-defective heated oxygen sensor (HO2S)

IMO its unlikely your O2 sensor's shot and only showing up with this code (not impossible, just usually there's a second one that makes it easier to diagnose..)

That leaves me to believe that if your mechanic has run a fuel pressure test (pretty likely) that a smoke test would be wonderful. I'd have to guess you have a leak somewhere (considering the age of your car it wouldn't surprise me you just have a cracked vacuum line) before I'd replace the O2 sensor. Now if the guy's willing to take back the parts if they're not the cause, then go right ahead..

Interestingly enough black smoke is from excess fuel, that makes it unlikely you've got low fuel pressure. Anyway here's volvo's take on your code..

Diagnostic trouble code (DTC) information

Condition

The control module receives information from the heated oxygen sensor (HO2S) about the fuel / air mixture when idling at both the lower and upper part-load range. If the fuel / air mixture deviates from λ=1, the short-term fuel trim will compensate for this by adjusting the injection time so that λ=1 is achieved. When the short-term fuel trim makes an adjustment, the integrator median must be adjusted by the long-term trim. Diagnostic trouble code (DTC) ECM-261A will be stored when the long-term trim must be adjusted to almost maximum in the lower part load area.


Substitute value
none


Possible source

Upper limit:
-intake air leakage
-exhaust system air leakage
-low fuel pressure
-defective heated oxygen sensor (HO2S)

Lower limit:
-intake air leakage
-high fuel pressure
-leaking injectors
-defective mass air flow (MAF) sensor
-contaminated engine oil
-oil level too high
-defective heated oxygen sensor (HO2S)


Fault symptom[s]
-none